With the Stocks and Shares ISA deadline in early April quickly approaching, many are revisiting their portfolios. For some, they may have spare cash and haven’t used up the full £20k current year allowance. For others, it’s getting stocks lined up in order to buy when the new ISA year begins. Here are some shares I’ve got on my watchlist from a dividend perspective.
A sustainable focus
Three of the four come from the renewable energy space. These are Foresight Environmental Infrastructure (10.95%), the Renewables Infrastructure Group (11.12%), and Foresight Solar Fund (12.74%). The dividend yields are shown in brackets. The first two have seen single-digit percentage share price moves lower over the past year, with Foresight Solar down 22%. This shows the theme over the past year: a lack of interest in renewables, particularly solar.
However, the divdiend per share for all the companies has increased over the past five years. This shows me that the problem isn’t the businesses’ fundamental operations, but rather sentiment towards the sector. With the share price lower, the divdiend yield increases.
For long-term ISA holdings, I think now could be a good time to consider buying. Electricity demand is surging, with growth in AI data centres and related AI projects. Renewables are likely going to become a key way to meet this demand. Further, recent geopolitical tensions in the Middle East highlight the sensitivity of using oil and gas. I believe this could encourage people to diversify away from these traditional sources of energy.
One risk for these firms is an increase in interest rates. The projects are capital-intensive, with loans taken out to help fund them. If high energy prices feed through to inflation, it could force UK interest rates higher this year, increasing debt servicing costs.
Switching sectors
Another UK stock in focus is the TwentyFour Income Fund (LSE:TFIF). The investment manager focuses mainly on buying and selling asset-backed securities. This includes products like mortgages and corporate loan packages. It earns interest on loans and other structured forms of credit. Given that they are higher risk than some other forms of debt, the interest charged is significantly higher. As a result, it’s able to pay out a large portion of this return through dividends. This is reflected in the current yield of 10.33%, with the share price down a modest 3% in the past year.
The dividend cover ratio is 1.1 right now, meaning that current earnings easily cover the dividend per share. This is one of the reasons I think the yield is sustainable going forward. Of course, a major risk is if the company incurs loan defaults. This would be negative for the stock and is a risk that can’t be avoided. Yet the fund went public in 2013, so it has a long enough track record to make me feel comfortable.
Overall, I think all four income stocks could be considered for either the end of the ISA year, or ones to kick off the new ISA year in April.
