If it can maintain its payout for another year, it means those buying £10,000 of shares today would earn £1,322 (38% more) over the next 12 months. This implies a yield of 13.2%, the highest on the FTSE 250.

But is this really sustainable? A yield at this level suggests investors have their doubts. Let’s see.

A cause for concern?

If I was a shareholder, I’d be concerned about the drop in Bluefield’s market cap. However, based on its latest internal valuation, the fall appears unjustified. It now means its shares trades at a 40% discount to the fund’s net asset value.

In other words, if the business ceased trading today and sold off its assets and cleared its liabilities, there would be around 26p a share – equivalent to three times its annual dividend – to give back to shareholders.

I appreciated that valuing non-quoted energy portfolios can be difficult, but this is an enormous discount. Can the fund’s accountants be so wrong?

And because of the management team’s frustration that investors don’t appear to value Bluefield’s 793MW of renewable energy assets as highly as they do, they have engaged advisors to explore the possibility of selling the group. If successful, it would probably mean the shares are de-listed from the London Stock Exchange.

An uncertain future

But there are no guarantees that a buyer will be found.

That’s due, in part, to the UK government’s decision to launch a consultation on how renewable energy projects should be subsidised in the future. Although there are no changes proposed to current contracts, it has caused uncertainty within the industry and makes investing in the sector riskier than might otherwise be the case.

Also, a higher interest rate environment means investors can earn a reasonable return elsewhere. This has resulted in many shares in the sector falling out of favour. And for the company, it makes it more expensive to borrow, which limits opportunities to expand.

If a sale doesn’t go through, the trust’s share price could continue to drift lower. But if it’s able to continue its recent policy of increasing its dividend each year, the yield will go higher still. Of course, there can never be any assurances given when it comes to payouts.   

Final thoughts

But I reckon the Bluefield Solar Income Fund has plenty going for it. Most of its income (84% comes from PV assets) is secured by long-term agreements and, although there will be some variability depending on how often the sun shines, the UK weather is generally bright enough to help the fund earn revenue all-year round. And with the price it receives for a significant proportion of its output guaranteed, it should be able to predict its earnings with a reasonable degree of accuracy.  

If a buyer does come forward, it’s hard to see how the directors can recommend selling the group for much less than its net asset value. I think it’s worth considering but not with the aim of a quick sale.

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What’s going on?

In cash terms, for the year ended 30 June 2025 (FY25), its payout was 11.2% higher than in FY21. This is a rate of growth that many other larger stocks have failed to match. However, the biggest contributor to its impressive yield has been a steady decline in its share price.

Since November 2020, it’s fallen 47%. If its stock was valued today at the same price it was five years ago, the yield would be 6.9%. Still healthy. But a long way short of its current 12.8%.

An increasing sense of frustration

The fund’s been trading at a discount to its net asset value for 3.5 years now. Remarkably, it’s now valued at 37% less than its assets.

Not only is this annoying for the owners of the business but it also has operational consequences as it restricts the level of borrowing that can be undertaken to fund future expansion.

This has prompted the management team to explore other options to realise shareholder value, including a possible sale. Bluefield’s managing partner said: “Doing nothing is not an option.”

Right place, right time

And given the encouraging long-term prospects for the industry, there’s a good chance that it will be able to find a buyer. As the fund’s name suggests, it invests primarily in solar assets, exclusively in the UK. From a domestic perspective, there’s currently 22GW of installed solar capacity. The government has set a target of 57GW by 2030.

Globally, according to SolarPower Europe, the technology accounted for 81% of all new renewable energy capacity in 2024. Impressively, it contributed 7% of all electricity generation, nearly doubling in three years.

Despite this, there’s been a general trend for stocks in the renewable energy sector to be trading below their fair value. It’s not just Bluefield Solar that’s affected. Higher interest rates and uncertainty over future levels of subsidies appear to have dented investor confidence.

However, there’s an inexorable move towards more renewable energy. Net zero targets may be slipping but the direction of travel is still towards a low-carbon world.

My verdict

If the business can be sold for somewhere approaching its asset value there could be a significant gain available for new investors. However, there are no guarantees this will happen. It’s therefore not sensible to buy something on the chance that it might be sold.

But in the meantime, while the board’s exploring various options, there’s the opportunity to earn a significantly above-average return from dividends. And although the sun doesn’t always shine, the weather’s usually bright enough to ensure a reasonably reliable earnings stream. In turn, this should help the fund continue to grow its dividend. On this basis, I think Bluefield Solar Income Fund could be one to consider.

Finally, I think it’s worth noting that there are other similar opportunities available across the FTSE 250. Many of the highest-yielding stocks are investment trusts with exposure to the renewable energy sector.

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But before jumping in, it’s worth remembering a few things about investing. For one, we shouldn’t be buying just for a percentage yield. We’re not simply buying a ‘stock’ either. Any money stumped up is an investment in the company itself, its operations and its long-term sustainability. This can help us decipher whether such a massive dividend yield is a golden opportunity or simply a flash in the pan.

The basics

To start with, what does Bluefield Solar Income Fund do? As the name suggests, the trust invests in solar energy assets across the UK. This has expanded to wind and energy storage assets too in recent years. Because much of its income is derived from inflation-linked government subsidies on the push to Net Zero, the fund aims to offer a generous dividend.

On the dividend, the current yield (based on the last 12 months of payments) is unusually high. The last 10 years suggests a yield of 6%-7% is more typical of what to expect.

The reason the yield has surged to double digits is intertwined with its falling share price. The shares were changing hands for 143p as recently as 2022. Since then, a 52% drop in the price has pushed that figure down to 69p along with bumping the dividend yield up too.

So what happened?

Crisis?

There’s no one single cause for the drop in the share price. Issues include rising interest rates, political uncertainty and changing longer-term forecasts of renewable energy. The upshot is that those safe, inflation-linked revenues are looking a lot more uncertain.

One red flag in this regard is the huge discount on ‘Net Asset Value’ or NAV. Estimates put the NAV per share at 114p. But the current share price is 69p, a whole 40% cheaper. This suggests that the markets don’t agree with the company’s assessment of its own assets.

The future for the fund is an uncertain one. The company was mulling a change to its business model. This was met with opposition from shareholders. Consequently, the firm has taken the decision to put itself up for sale. No buyers have emerged in the three weeks since that announcement.

What happens from now is difficult to predict. But one thing I’m fairly confident on is that 12% yield is not long for this world. Personally, I’m not interested in adding this type of stock to my portfolio at this stage.

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With a yield of 12.71% and the shares trading at a near-30% discount to their net asset value, there could be a potentially lucrative opportunity for both income and value investors here. So is this a passive income goldmine? Or is it a trap?

Going against the crowd

This business invests in a diverse portfolio of renewable energy infrastructure projects consisting of 93% solar farms and 7% wind farms across the UK. But investor sentiment surrounding renewable energy companies is fairly weak at the moment.

Pressure on energy prices, uncertain future political support, and higher interest rates are proving to be a nasty combo for many companies operating in this sector. And Bluefield’s no exception.

But as all experienced investors know, taking a contrarian approach to the stock market can deliver some phenomenal long-term results. Why? Because some of the best buying opportunities are often found among the least popular businesses and sectors.

Of course, this strategy only works if there’s hidden value. So is Bluefield hiding something special?

Passive income potential

Bluefield makes its money by selling clean electricity generated by its portfolio of assets. Since energy prices move in line with inflation, its profits have similarly followed. And with the bulk of these inflation-linked earnings paid out to shareholders, dividends have been hiked annually for the last eight years.

Looking at its latest results, this trend seems set to continue. When stripping out the non-cash costs of valuation changes in its assets, the underlying profits after debt payments stand at £61.8m. While that’s slightly lower compared to the £64.5m reported in 2024, it’s still more than enough to cover the £54m in dividends paid.

In other words, even with a doube-digit yield, shareholder payouts remain affordable. The dividend coverage is tight at around 1.2. However, with further interest rate cuts expected throughout 2026, the amount of free cash flow gobbled up by Bluefield’s outstanding debts is expected to fall. This would improve the coverage ratio and make room for even more payout hikes.

What’s the problem?

On the surface, Bluefield’s dividend seems set to continue climbing. But digging deeper, investors might have a good reason to be cautious.

Even with management executing a strategic refinancing of its outstanding loans, the group still has £134.9m of borrowings maturing in May 2027.

Given the group’s already excessive gearing of 45.7%, finding a lender offering a low rate seems likely to be a challenge. And with equity investors showing little interest in the renewable sector, there’s a good chance Bluefield might be forced to sell some of its assets at a discount to cover this upcoming cost.

In this scenario, with fewer assets generating cash flow, dividends might be vulnerable to a payout cut after all.

With that in mind, while I remain confident there are hidden value opportunities within the renewable energy space in 2025, I’m not convinced Bluefield sits among them. That’s why, even with a double-digit yield, I’m not buying any shares.

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For example, Bluefield Solar Income Fund (LSE: BSIF) yields 10.2%. Meanwhile, Foresight Solar Fund (LSE: FSFL) is yielding 10.1%.

Am I missing out by not owning any solar fund shares?

Taking the long-term approach

The short-term answer is: yes, I am.

Owning a 10%+ yielding share helps boost my passive income streams. I do own at least one, but not Foresight Solar Fund.

Over the past few years, Foresight has grown its dividend per share annually. It pays dividends quarterly. From a passive income perspective, that can be attractive compared to less frequent payouts.

But while I am missing out on dividends, what about capital growth?

Here the picture is less appealing. Over the past five years, the Foresight Solar Fund share price has fallen 25%.

Coincidentally, the share currently sells for 25% less than its net asset value.

Some red flags

Hang on, though.

Why would a share sell for a quarter less than its net asset value?

After all, the shareholders could simply vote to wind the company up, sell the assets, and recoup substantially more money than their shares are currently worth.

In theory, they could. In practice, though, things tend to be more complicated than that.

Trying to realise a company’s asset value is notoriously difficult. Who is to say that if Foresight Solar Fund tried to realise cash by selling its assets it would be able to obtain the valuation at which they are carried on its balance sheet?

That 25% discount is something of a red flag for me, along with the long-term decline in the share price despite steady dividend growth. Clearly, some investors are looking beyond the juicy dividend yield to the long-term prospects for the fund.

A sector ripe for change

Foresight Solar Income Fund management is well aware of this.

It has also been wrestling with possible explanations for why solar funds like itself trade below their net asset value. It has also raised the prospect of mergers and acquisitions in the sector.

That could potentially help unlock some value in the sector.

Then again, it could be bad news. After all, lowball takeover bids can potentially destroy value for many shareholders – something I am currently experiencing with my investment in Treatt.

I don’t like the uncertainty

Foresight Solar Income Fund has been steadily buying back its own shares lately. Doing that well below net asset value ought to help create value for shareholders.

The bigger question is whether solar income funds like those run by Bluefield and Foresight have a viable long-term business model. Volatile energy prices and changing weather patterns are risks for both.

With Foresight Solar Income Fund set to report its interim results this Thursday (18 September), we should hear management’s current thinking about the prospects for the sector.

But I do not like the question marks over the business model implied by the large discounts to net asset value of both these FTSE 250 shares (Bluefield Solar Income trades on a 26% discount). I will not be investing in either.

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Minor changes to boost yield

I’m going to assume that an investor has a pot of £40k already, built up over several years. If it’s a mix of FTSE 100 and FTSE 250 stocks, they should already be making income from it. This is because the average yield from both indexes is almost identical at 3.28%.

Yet when I consider that there are stocks that yield more than 10%, it’s clear that with some tweaks, the portfolio yield could be enhanced significantly. By swapping out some lower-yielding options for higher-yielding ones, the average yield of the portfolio can increase without taking on a significant amount of additional risk. This is because the risk is spread between all of the stocks in the ISA.

For example, let’s say the ISA has 20 stocks, with a yield of 3.28%. If we remove two and add two fresh ones with a yield of 9%, the overall yield rises to 3.85%. Yet the investor still has 20 stocks, so it’s not a concentrated portfolio that we should be worried about.

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One to consider

A dividend share that could be worth researching for this strategy is the Bluefield Solar Income Fund (LSE:BSIF). It’s an investment trust that primarily invests in UK-based solar energy assets. Over the past year, the share price has been down 9%, but it boasts a dividend yield of 9.14%.

The business model is quite simple in that the goal is to generate long-term, stable income by selling electricity generated by its renewable energy projects. It can sell the electricity produced by its solar and wind farms to the national grid or through purchase agreements with commercial partners.

Given that around 60%-70% of the fund revenues are underpinned by long-term contracts and subsidy schemes, it offers predictable cash flows. This makes it attractive for income investors. Notably, the yield has remained above 5.5% for the past five years. Looking forward, dividend cover is 1. This means the earnings per share cover the current dividend per share completely. It’s a good sign that the yield is sustainable, although it would be better if coverage was higher.

However, investors need to be cautious about the share price falling, as this can erode profits. One concern is that it’s partially reliant on government funding, particularly through legacy subsidy schemes. If the government is forced to cut back on spending to improve the fiscal situation here in the UK, it could be a negative hit to Bluefield’s income.

Talking numbers

Based on my calculations, a £40k ISA with around two dozen stocks can be adjusted to include some high-yield options. If half the stocks were at the average index yield of 3.28% and the other half were at an average yield of 8.5%, the blended portfolio yield would be 5.89%. This means that in the following year, it could generate a monthly income of £196. This is without investing any new capital. Of course, this isn’t guaranteed, but it’s a good indication of potential cash flow.

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Here are two high-yield dividend stocks that could help diversify an investor’s portfolio:

As you can see, the prospective yields on these stocks smash the broader average for FTSE 100 and FTSE 250 shares (both at 3.4%). Dividends are never guaranteed, but if broker forecasts are accurate, a £15,000 lump sum invested equally across them would produce a £1,320 passive income this year alone.

Here’s why I think both shares are worth considering.

Taylor Wimpey

Latest trading numbers from Barratt Redrow have reminded investors of the ongoing perils facing the housebuilders.

On Tuesday (15 July), it said completions were a disappointing 16,565 last year, missing a targeted 16,800-17,200. This was due to “consumer caution and mortgage rates not falling as quickly as hoped“, the Footsie company noted.

Conditions may remain tough as the UK economy splutters. But I’m confident Taylor Wimpey’s industry-leading balance sheet means it should still at least be able to continue paying large dividends.

It remains highly cash generative, and ended 2024 with more than half a billion pounds (£564.8m) in net cash.

That’s not to say I believe Taylor Wimpey’s recent sales revival is about to run out of steam, though. Its order book — which rose to 8,153 homes as of 27 April from 7,742 a year earlier — could continue building as interest rates seemingly have further to fall.

I’m certainly expecting the FTSE 100 share to perform strongly over the long term, helped by intensifying mortgage market competition and planned changes to home loan regulations. These include allowing lenders to offer more mortgages based on more than 4.5 times a homebuyer’s annual income.

This measure alone could help a further 36,000 first-time buyers get onto the property ladder. As the UK’s population steadily grows, I’m optimistic housebuilders like this will remain excellent dividend payers.

Bluefield Solar Income Fund

Bluefield Solar also stands to gain from falling interest rates that reduce borrowing costs and boost asset values. But like Taylor Wimpey, renewable energy stocks like this also face other dangers over the next year.

In this case, the costs to build green energy projects are rising, casting doubts over their future profitability and plans for expansion. But on balance, I think this FTSE 250 investment trust is another great dividend share to consider.

By focusing on energy-generating assets, it can expect earnings to remain stable over time, underpinned by the stable nature of energy demand. This is especially attractive today, with trade tariffs threatening to throw the global economy (and with it profits for many UK shares) off the rails.

A reason why I like Bluefield Solar specifically is its strategy of investing mostly in Britain, where government policy is especially supportive of the renewable energy sector. Over the long term, I expect dividends here to rise strongly along with earnings, driven by growing demand for greener power sources.

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TBC Bank

TBC Bank (LSE:TBCG) is the largest retail bank in Georgia. It has the scale and the brand recognition to capitalise on its rapidly expanding market, and it’s making the most of the opportunity — latest results showed net profit up 7.4% in the three months to March.

It also operates a full digital bank in neighbouring Uzbekistan, another country with low banking penetration and enormous scope for growth. The IMF expects the Georgian and Uzbekistani economies to swell 7.3% and 5.9% in 2025, continuing the rapid growth of recent years.

I don’t think these opportunities are reflected in TBC Bank’s rock-bottom P/E ratio of 6.4 times. I certainly believe it has greater earnings potential than UK-focused FTSE 100 banks like Lloyds and NatWest, firms that command higher valuations.

Rising geopolitical tension around Eastern Europe and Eurasia bears keeping an eye on. This could impact investor sentiment and weigh on the share price. But at the moment things still look rosy for this emerging markets bank.

Wizz Air

While industry rivals International Airlines Group (IAG) and easyJet have soared, budget airline Wizz Air (LSE:WIZZ) shares have remained grounded.

Not even a modest P/E ratio of 6.1 times is tempting bargain hunters. I’m one of those who is happy to stay on the sidelines.

A focus on Central and Eastern European markets provides substantial long-term growth potential. But the business also operates in an ultra-competitive marketplace where other enduring problems (like volatile fuel costs and possible strike action by aviation staff) can hammer earnings.

Nearer term, I’m concerned about softening holiday spending as consumers continue to feel the pinch. Furthermore, engine problems that have grounded a large portion of its fleet threaten to continue over the next few years.

I believe the cheapness of Wizz Air shares fairly reflects its high risk profile.

Bluefield Solar Income Fund

Renewable energy stocks have had a tough time in recent years. Rising construction costs, higher interest rates, and changing US policy have driven valuations lower across the sector.

Bluefield Solar Income Fund (LSE:BSIF) is one such share that’s fallen sharply in recent years. This means it now trades on a mega-low P/E ratio of 5.6 times.

For long-term investors, I think this is an attractive dip buying opportunity to consider. The fund has more than 200 solar assets in the UK, a region in which government support for renewable energy remains favourable. Importantly, these projects cover 16 counties across the length and breadth of Britain, which reduces the risk that bad weather in one area will significantly impact the whole portfolio.

As well as having that low earnings multiple, Bluefield Solar offers an enormous 9.2% forward dividend yield. Like TBC Bank, I’ll consider buying this value share when I next have cash spare to invest.

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Could those yields last – and ought I to buy the shares in question for my portfolio?

Making money from the sun

The 8.9% yielder is Bluefield Solar Income Fund (LSE: BSIF), while 9.3% is on offer at Foresight Solar Fund (LSE: FSFL).

Over the past five years, however, those two shares’ prices have fallen 25% and 21%, respectively.

That partly explains the high yields. Another part of the explanation has been annual increases in the dividend per share during that timeframe.

Those annual increases have continued at Foresight Solar Fund. This year, however, has seen Bluefield Solar Income Fund hold its dividends per share steady for the payments declared so far.

So, given the high yield and also sizeable discounts to net asset value implied by the current share prices (Foresight’s discount is 22% and Bluefield Solar’s is 20%), what is going on here? What might it signal about future dividend streams?

Variable financial performance

Bluefield has seen revenues grow steadily over the past five years. But income has moved around significantly. Last year, the fund actually made a loss of £10m.

While the fund has locked in the price of some of its power sales, the majority of its output is not sold at a pre-agreed rate. This means that there is a risk weaker energy prices could hurt earnings.

The flip side of that is also true, though: higher energy selling prices could boost profits.

Meanwhile, Foresight swung back to a profit last year after making a loss the year before. Its revenues have also moved around in recent years.

Challenges face the sector

Something I think these two FTSE 250 funds have in common is that they are in a sector with fairly unpredictable economics.

In March, Foresight pointed to “poor weather and persistent macroeconomic headwinds in the UK” as helping to explain why listed renewables companies may be trading at a discount to net asset value. It continued that “meaningful returns of capital will inevitably lead to a reduction in the listed renewables asset class, and we are likely to see examples of successful consolidation”.

In other words, there may be mergers or takeovers in the sector. Given that some solar companies are trading at a deep discount to net asset value, such consolidation would not necessarily be value-creating for long-term shareholders.

The economics of the sector have proven challenging so far. A shift in policy in recent years means that solar energy may not have as large a role in long-term UK power generation as some operators once hoped. That raises the question of how sustainable the current dividend yields will be in years to come. If energy prices weaken substantially, I see a risk that the dividends will be cut.

So, I see the high yields of both of these shares as a warning sign suggesting that the City is concerned about the risks involved in investing in the sector. Even a high yield can be unattractive if a share price falls enough.

Given that context, I do not plan to add either share to my portfolio.

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Renewable energy spark

The first is the Bluefield Solar Income Fund (LSE:BSIF). Over the past year, the stock has fallen by 9%, with a current dividend yield of 9.12%.

The UK-based investment company focuses on generating long-term income for investors by investing in renewable energy assets, primarily solar energy installations. It owns and operates a portfolio of solar farms, generating money by selling the electricity, as well as benefitting from government grants and subsidies.

It has a strong track record of paying out income, having done so on a consistent quarterly basis for over a decade. The business model suits it well, given that the electricity supply contracts it has in place offer predictable cash flow. In the interim results from February, the dividend cover was 1.5. This means the current earnings can easily cover the dividend payments, with funds left over. This bodes well for the future.

Of course, one risk is the fluctuations in the electricity price. It’s a commodity, just like oil and gold, so demand and supply can cause large price movements. If power prices fall significantly, it would negatively impact revenue.

Funding mainstream projects

A second option is GCP Infrastructure Investments (LSE:GCP), which currently has a very generous yield of 9.75%. This is well above the UK base rate of 4.5%.

The stock is down a modest 4% in the last year, with it trading at a high 31% discount to the net asset value (NAV). This refers to the value of the assets within the fund, in comparison to the stock price. Over the long term, these two figures should match up, but differences can exist in the short term. The fact that the share price is so far below the NAV can indicate that the company is undervalued.

Within the fund, it generates income by providing loans to entities involved in UK infrastructure projects. These loans are typically secured against cash flows backed by the UK public sector, such as payments from government departments, local authorities, or NHS trusts. As a result, I believe the dividend payments are relatively safe, given the reliability of the debtors.

The risk some might have on their mind is that providing any form of loan means that there’s potential for defaults. Given the size of some of the projects, even one default has the potential to significantly impact the operation of the business.

Due to the 9%+ dividend yields, I think both stocks fairly compensate an investor for the associated risks. Therefore, investors who are considering adding income shares to their portfolio may want to consider including these two.

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