SDCL – worth a closer look for income investors I’ve long thought the market undervalues SDCL Energy Efficiency Income Trust (SEIT). Over the last few years, it has done pretty much everything to prove that its discount – which at one point hit 42% – was wide of the mark. Its sold assets at or above their net asset value. It runs an extensive share buyback programme. It has a covered dividend from relatively dull assets. Its net yield, even now, is a compelling 9.5%. Its managers have bought shares, and so have the directors. It even turned in decent trading numbers back in March: a quick summary below.
The portfolio aggregate EBITDA outperformed the budget for the calendar year 2023 The Investment Manager has selected a preferred bidder for one of the Company’s larger investments and aims to select a partner for another in the coming months The Company is on track to deliver fully cash-covered aggregate dividends of 6.24p per share for the financial year to 31 March 2024 SEEIT made organic investments totalling £52 million between 1 October 2023 and 18 March 2024, all of which into existing assets under development or construction – predominantly in Red Rochester and Onyx – where the Company anticipates strong double-digit internal rate of returns I think the fund’s research team at Numis summed it up nicely (back in March) when they observed that “SEIT’s update contains positive comments on EBITDA delivery from the portfolio, a cash covered dividend, and progress on its disposal plans with an update expected by the end of June along with additional clarity on capital allocation priorities. Potential proceeds will be used to repay the £155m drawn balance on its RCF.”
It was also recently announced that US private equity firm General Atlantic has built a 12% stake in SDCL Energy Efficiency Income Trust (SEIT), making it the second-largest shareholder after wealth manager Investec, according to Citywire. Here’s a bit more colour from that Citywire report :
“After shares in the £950m renewable infrastructure fund derated last year, New York-based General Atlantic started to build a $99m (£79.3m) position in December. It last bought shares in March. They currently trade on a 28% discount, reducing its market value to £679m.
Headed by executive chair Bill Ford, General Atlantic portrays itself as a patient, long-term investor in unquoted growth companies on behalf of wealthy families.”
So, to repeat, this is a quality fund with a well-covered dividend, proving its net asset value, with a big strategic investor on board and still yielding 9.5% on a 25% discount. As soon as interest rates start to decline, I think investors will begin to realise that even at a 25% discount, this is dirt cheap. I think there’s a decent chance that by this time next year, the share price could be back above 80p, and in the meantime, investors will also pick up the healthy dividend cheque. For income-seeking investors, this is well worth a closer look.
Shares issued at 100p, including dividends 75.5p. If u had re-invested the dividends elsewhere a benefit, which we will ignore.
Bottom picking is a nasty habit as the chart shows but out of adversity, often comes opportunity.
Current yield 10% discount to NAV 54%.
(Alliance News) – Residential Secure Income PLC on Wednesday said it was making good progress on the sale of its local authority portfolio, though it declared a lower payout amid a net asset value fall.
The real estate investment trust, focused on retirement living and shared ownership homes, said net asset value per share declined 5.7% to 85.9 pence at its December 31 first-quarter end, from 91.1p at September 30.
Residential Secure shares rose 2.3% to 53.01 pence each on Wednesday morning in London.
Over the same three months, EPRA net tangible assets NAV contracted 2.1% to 80.1p from 81.8p.
The company declared a quarterly dividend of 1.03 pence per share, down 20% from 1.29p a year prior.
Looking ahead, the company noted “strong” rental inflation-linked growth which it anticipated to continue and to be buoyed by wage and pension growth, amid “strong and accelerating institutional appetite for residential exposure.”
Ben Fry, managing director of Housing at Gresham House, which manages the company, said: “We’re pleased to be making good progress on the sale of our local authority portfolio, with one asset exchanged in line with book value and the remainder advancing through due diligence. These sales will enable the repayment of all our floating rate debt, significantly strengthening our balance sheet. That will allow us to strengthen the quality of our dividend cover, better buttressing RESI against potential future economic headwinds.”
He added: “Long-term demand drivers for affordable, accessible or retirement housing remain very strong and this continues to be a highly attractive part of the real estate sector for us to be invested in.”
31 January 2024
Residential Secure Income plc
Net Asset Value and corporate update
Residential Secure Income plc (“ReSI plc”) (LSE: RESI), which invests in independent retirement living and shared ownership to deliver secure, inflation-linked returns, is pleased to announce its unaudited first quarter net asset value (“Net Asset Value” or “NAV”) as at 31 December 2023 and to update on recent corporate activity for the period.
Strong operational performance reflecting defensive nature of assets
· Portfolio focused on direct leases with pensioners and part homeowners
· Rent collection consistent at over 99% for the quarter
· Rental growth of 6.6% on 449 properties (15% of portfolio) giving 1.3% like-for-like growth
· Shared ownership portfolio fully occupied with record 96% retirement occupancy continuing
Advancing sale of Local Authority Portfolio
· Exchanged on sale for £5.8mn of assets in line with September 2023 book value, with completion scheduled to occur by early April 2024
· As announced at year end, proceeds will be used to pay down floating rate debt
· Remainder of the Local Authority portfolio under offer with due diligence advancing
Fully covered dividend
· Quarterly dividend of 1.03 pence per share (“p”) announced today in line with FY24 target
· 121% dividend coverage from Adjusted EPRA earnings of 1.25p
· Local Authority Portfolio Sale is expected to reduce annualised dividend coverage by c.6% but improve its quality through repayment of floating rate debt
Valuationdecline as a result of a 10 basis point outward yield shift across the portfolio
· Total EPRA return for the quarter of -0.8% (0.7p) to give EPRA NTA of 80.1p (£148.3mn) as at 31 December 2023
· Driven by a 1.3p, or 0.6% decrease in like-for-like investment property values, as follows:
1.8p increase from inflation-linked rent reviews in the quarter
o 3.1p decrease resulting from a further 10 basis points outward yield shift
· Annualised net rental yields now 5.6% in retirement and 3.5% in shared ownership.
Resilient balance sheet with long-term and low-cost debt
· Diverse portfolio of 3,293 homes worth £343mn
· 21-year average debt maturity, 90% fixed or index linked
· Loan-to-value ratio of 52% and reduced to 43% when including 22% reversionary surplus
· Sale of local authority portfolio will allow for repayment of all floating rate and short-term debt
Outlook
· Strong rental inflation-linked growth expected to continue, underpinned by wage/pension growth
· Strong and accelerating institutional appetite for residential exposure
· Focus on driving retirement performance including rationalising portfolio footprint, driving rents, and reducing leakage
· Continuing to review options for further disposals which support maximising shareholder value
· Acute need for more affordable homes, estimated at £34bn annually
· Particular shortage of independent retirement accommodation for growing elderly population and accessible homeownership options providing significant opportunity to scale these platforms and drive returns
Ben Fry, Managing Director, Housing at Gresham House, commented:
“This has been a quarter of continued strong operational performance, with high levels of rent collection, occupancy and rent growth all leading to strong dividend cover. While this covers a period where rising long-dated gilt yields continued to impact on valuations, we’re encouraged by independent market forecasters projecting that the interest rate hiking cycle has ended and is turning, which should alleviate any further downward pressure on valuation yields.
“We’re pleased to be making good progress on the sale of our local authority portfolio, with one asset exchanged in line with book value and the remainder advancing through due diligence. These sales will enable the repayment of all our floating rate debt, significantly strengthening our balance sheet. That will allow us to strengthen the quality of our dividend cover, better buttressing ReSI against potential future economic headwinds.”
“Long-term demand drivers for affordable, accessible or retirement housing remain very strong, and this continues to be a highly attractive part of the real estate sector for us to be invested in.”
About RESI plc
Residential Secure Income plc (“ReSI plc” LSE: RESI) is a real estate investment trust (REIT) focused on delivering secure, inflation-linked returns with a focus on two resident sub-sectors in UK residential – independent retirement rentals and shared ownership – underpinned by an ageing demographic and untapped and strong demand for affordable home ownership.
As at 31 December 2023 ReSI plc’s portfolio comprises 3,293 properties, with an (unaudited) IFRS fair value of £343mn.
ReSI plc’s purpose is to deliver affordable, high-quality, safe homes with great customer service and long-term stability of tenure for residents. We achieve this through meeting demand from housing developers, housing associations, local authorities, and private developers for long-term investment partners to accelerate the development of socially and economically beneficial affordable housing.
(Alliance News) – Residential Secure Income PLC on Wednesday said it was making good progress on the sale of its local authority portfolio, though it declared a lower payout amid a net asset value fall.
The real estate investment trust, focused on retirement living and shared ownership homes, said net asset value per share declined 5.7% to 85.9 pence at its December 31 first-quarter end, from 91.1p at September 30.
Residential Secure shares rose 2.3% to 53.01 pence each on Wednesday morning in London.
Over the same three months, EPRA net tangible assets NAV contracted 2.1% to 80.1p from 81.8p.
The company declared a quarterly dividend of 1.03 pence per share, down 20% from 1.29p a year prior.
Looking ahead, the company noted “strong” rental inflation-linked growth which it anticipated to continue and to be buoyed by wage and pension growth, amid “strong and accelerating institutional appetite for residential exposure.”
Ben Fry, managing director of Housing at Gresham House, which manages the company, said: “We’re pleased to be making good progress on the sale of our local authority portfolio, with one asset exchanged in line with book value and the remainder advancing through due diligence. These sales will enable the repayment of all our floating rate debt, significantly strengthening our balance sheet. That will allow us to strengthen the quality of our dividend cover, better buttressing RESI against potential future economic headwinds.”
He added: “Long-term demand drivers for affordable, accessible or retirement housing remain very strong and this continues to be a highly attractive part of the real estate sector for us to be invested in.”
Much has been written about the shrinking UK stock market, yet the FTSE 100 has been hitting all-time highs. Are we seeing the start of a sustained push from UK equities? Or, is this a flash in the pan?
By Frank Buhagiar
Type ‘UK Stock Market’ into your favourite search engine and, based on the titles of recent articles, London’s equity markets do not appear to be in a good place:
However, ‘FTSE 100 hits new highs’ (or similar) is a headline that has popped up regularly in recent weeks. For, as the graph to May 2024 below shows, ever since the FTSE breached 8000 back in March 2024 (only the second time it has done so), there’s been no stopping the index:
So, why is the London Stock Market still viewed as unappealing despite the record-breaking FTSE 100? Well, it’s a matter of timing and perspective.
Aside from the last few weeks, the FTSE 100 has, except for a scary moment or two, largely traded sideways between 7000 and 8000 for the best part of two decades Compare the FTSE’s performance with that of other major indices around the world over the last five years to 20 May 2024 and the UK index, very much in the laggard camp:
A 15% gain over five years is respectable considering what the world has been through in that time. But compare that 15% return to the S&P 500 and Nikkei 225’s 88%+ returns over the same time frame. Or the 50%+ generated by the French and German indices. The case for London being unloved is there for all to see in numbers.
As for why London has been stuck in the doldrums, take your pick from Brexit to Covid to not having a Magnificent Seven. Subsequently investors have been pulling their funds out of UK equities. According to the Investment Association, UK equity funds experienced £14 billion in outflows in 2023. And 2023 was no outlier – it was the eighth consecutive year of outflows.
For investors wanting out, read persistent selling pressure and depressed share prices. Depressed share prices keep sentiment (and valuations low). More investors sell up and the cycle goes again.
Share prices keep sentiment (and valuations low). More investors sell up and the cycle goes again.
Everything has its price
Until that is, when valuations hit such depths that buyers are tempted back in. One of the first group of buyers to appear in search of picking up a bargain – overseas businesses. Cue flurry of bids for London-listed companies – this year alone has seen offers for Currys, Wincanton, Spirent and Direct Line. Suddenly, there are buyers in town. Sentiment improves and with it the short-term performance of the UK’s premier stock market.
Admittedly, the above is all very simplified but the question is, will the improved performance prove to be sustainable over the longer term or is it just a flash in the pan? Only time will tell. Unsatisfactory answer maybe, but what if there was a way of investing in the UK market with a built-in margin of safety, one that enabled investors to gain exposure at discounted prices?
Enter UK-focused equity investment companies. Whether investing in large caps, small caps, income or growth, seems the lack of interest in UK stocks has contributed to investment company share prices trading at steep discounts to net assets, often at levels close to year highs.
UK All Companies
None of the five companies in the sector are trading at year-high discounts to net assets. Three are trading at double-digit discounts, the two exceptions being Fidelity Special Values (FSV) on a -9.3% discount and Aurora (ARR) on -9.5%.
Not all trusts are trading at major discounts to net assets – Law Debenture (LWDB), which uniquely in the sector runs an operating business alongside a portfolio of UK equities, is trading at just a -0.1% discount (for more on LWDBhave a listen to the management team here).
A further four trusts have share prices trading at sub-5% discounts to net assets – Merchants (MRCH) on -2.0%; CT UK High Income (CHI) on -3.9%; CT UK Capital & Income (CTUK)on -3.7%; and City of London (CTY) -2.5%.
That leaves 12 funds trading at 5%+ discounts to net assets. What’s more a number of these have recently released decent-looking results:
Dunedin Income Growth (DIG) unveiled an NAV total return of +6.7% for the year ended 31 January 2024, beating the FTSE All-Share’s +1.9% and all the other trusts in the AIC UK Equity Income sector.
Temple Bar (TMPL) reported a +12.3% NAV total return for the year ended 31 December 2023 comfortably ahead of the FTSE All Share’s +7.9%.
JPMorgan Claverhouse (JCH) announced a +7.3% NAV return for the year ended 31 December 2023, not far off the All Share’s +7.9%
Murray Income (MUT) posted a +4.5% NAV per share total return (with debt at fair value) and +6.2% share price total return for the six-month period ended 31 December 2023 compared to the FTSE All Share’s +5.2%
Edinburgh’s (EDIN)+13.4% NAV per share (with debt at fair value) total return for the latest full-year easily beat the FTSE All-Share Index’s +8.4% return. The share price total return came in at 8.9%.
Finsbury Growth & Income (FGT)reported a +5.9% NAV per share total return and share price total return of +2.7% for the six months to 31 March 2024, a little behind the FTSE All-Share Index +6.9%
All six trusts making progress to various degrees. And yet, all six trusts trading at 5%+ discounts.
Fear of Missing Out
So, for those investors fearing they’ve missed the boat and/or those concerned the UK market will have its moment in the sun and then revert back to type – that is unloved – most UK-focused equity investment companies provide a route to market with that all-important margin of safety. What’s more, with a General Election called for 4 July 2024, those discounts could come in handy were there to be any election-induced market jitters.
‘Discounted UK equity investment trusts offer margin of safety’ – now that’s a headline worth noting.
The Tip Sheet The Times thinks Finsbury Growth & Income remains a solid choice, while This is Money explains what sets CQS Natural Resources Growth and Income apart from its peers.
By Frank Buhagiar 29 May, 2024
Tempus: Finsbury fund is a train well worth boarding Finsbury Growth & Income (FGT) gets the nod of approval from The Times’ Tempus Column. The tipster thinks the UK equity income fund remains a solid choice despite having had a tough time of it in recent years – the shares have only a measly looking 1% gain to show for the last three years. But it’s the long-term track record that has caught Tempus’ eye. Over the past decade, fund manager Nick Train has generated a 99% return, around 20% more than the FTSE All Share.
The article puts the strong long-term performance down to a focus on high-quality, high-growth and mostly British businesses that are market leaders. Focus being the operative word, for when Train finds a stock he likes, he invests with conviction – the fund holds just 21 stocks with the top ten alone accounting for 85% of assets. This high-conviction approach works both ways. When underlying holdings hit a rough patch, the portfolio’s performance takes a hit – Diageo (10% of the portfolio) has suffered a 20% fall in the share price this last year following a slowdown in US sales. Throw in an improvement in sentiment towards value stocks and it’s easy to see why FGT has struggled to make headway over the past three years.
That may be true at the fund level but in terms of the portfolio’s holdings, these continue to churn out decent numbers. Tempus highlights how FGT’s underlying companies have an average return on equity (how efficiently businesses generate profits) of 35% and have an estimated 9.5% long-term earnings growth rate. Together with the 8% discount to net assets at which the fund’s shares trade (the five-year average discount is 2.5%) and Train’s sizeable stake in the trust (£44.6 million as at September 2023) and there’s enough there for Tempus to rate FGT a buy ‘for those who want a high-quality, concentrated portfolio at a discount and under the care of a well-respected manager’.
This is Money: CQS Natural Resources Growth and Income: Golden Opportunities Before running through what This is Money has to say about CQS Natural Resources Growth and Income Fund (CYN), have you ever wondered what CQS stands for? Jeff Prestridge explains, CQS reflects the investment house’s expertise in managing credit – ‘convertible and quantitative strategies’. Back to CYN, the more established of three natural resources funds managed by CQS, the others being Geiger Counter (GCL) and Golden Prospect Precious Metals (GPM).
The managers of CYN, which has been running since 2003, invest in companies involved in the extraction of natural resources. Based on the performance record, the managers do their jobs well. Over the last year, the £127 million fund has delivered an 18% shareholder return. Over five years, the return stands at 187%. The article goes on to explain what sets CYN apart from its peers – a focus on mid-sized and smaller companies. This means when building its exposure to a sector such as oil and gas (25% of the portfolio) it avoids energy giants such as BP and Shell. Instead, the fund is littered with stocks unfamiliar to the eyes of most UK investors – listed in the US, Canada and Australia.
In terms of income and costs, the trust pays dividends quarterly and currently offers an annual yield of 2.9 per cent. Meanwhile, at 1.8%, ongoing annual charges are on the high side but that’s the price you pay for CYN.
The Directors of the Company, an investment trust specialising in secured debt investments, have declared an interim dividend of 1.625 pence per ordinary share in respect of the period from 1 January 2024 to 31 March 2024:
I’d aim for an annual second income of £34k with high-yield dividend stocks
I’m looking for the best way to start earning a second income with very little effort. Is it by investing a large sum into high-yield dividend stocks ?
Mark David Hartley
Published 30 May
Image source: Getty Images
When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.
You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services.
There are several strategies when it comes to investing for a second income. Some aim for slow-but-reliable gains over a long period. Others aim for high returns from undervalued shares with growth potential.
I think buying stocks with high yields and reinvesting the dividends to compound the returns is a good strategy. But while some of the highest yields go up to 15% or more, they aren’t necessarily reliable. It’s best to choose stocks with a long track record of making payments and increasing the yield.
A good example is Greencoat UK Wind (LSE:UKW) , a FTSE 250 real estate investment trust (REIT) that invests in the renewable energy sector.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.
Harnessing the power of wind
Greencoat UK Wind specialises in onshore and offshore wind farms. With renewable energy on track to reach a goal of triple capacity by 2030, demand for wind power should remain high. The company’s assets already supply 10Mw of power to UK homes and last month it signed a new 10-year Power Purchase Agreement (PPA) for its Ballybane Phase 1 wind farm.
With a 7.5% dividend yield, it’s double the FTSE 250 average yield of 3.23%. It’s been paying a dividend consistently for over 10 years, during which time it has mostly been between 5% and 6%. However, the share price of £1.35 hasn’t changed much in five years, other than a brief increase during 2022. But that wouldn’t concern me much. It’s fairly common of income shares, which focus on providing returns via dividends
While the trust’s dividends are steady and reliable, earnings and revenue are in decline. Projections indicate it could become unprofitable next year. With increased investment pushing up the share price, its price-to-earnings (P/E) ratio is now at 25 times. That’s a lot higher than the industry average of 16.8.
This also means earnings per share (EPS) has decreased to 5.5p — well below the current 13.7p dividend. As a result, the yield might be reduced later this year or next. However, based on the prior 10-year track record, payments should remain consistent.
The bottom line
Greencoat UK Wind has a solid balance sheet that seems stable enough to handle a period of losses. It’s debt of £1.8bn is well-covered by equity and assets significantly outweigh liabilities. Its debt-to-equity (D/E) ratio is 47% and interest coverage is 3.1 times.
With strong industry growth and an exceptional track record, I believe the trust will continue to pay reliable dividends for the indefinite future. And I’m not alone. On 22 May, Barclays put in an overweight position for the stock, indicating it believes the stock will outperform its sector average over the next eight to 12 months.
As such, I think it would make a great additional to a dividend portfolio aimed at building a second income stream. If I invested £20,000 into a portfolio with an average yield of 7% and a 2% annual price increase, it could grow to near £400,000 in 30 years. It’s not guaranteed, but that amount would pay out a second income £34,500 in dividends per year.
I’m using this strategy to generate a second income stream for a comfortable retirement
With only £100 a month, this Fool UK contributor is aiming to secure a comfortable retirement with a second income stream.
Mark David Hartley
MotleyFool
Published 1 December, 2023
The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.
Image source: Getty Images
When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.
With as little as £100 a month, I plan to capitalise on the compounding interest of an ISA to secure a second income stream for my future.
While a pension scheme is the most common hands-off way to save for retirement, it does come with some pitfalls. Should I wish to retire early, I’d have to pay a fee for early withdrawal. It’s also not uncommon for governments to increase the age to claim state pension. With that in mind, I think it’s a good idea to have a second income plan that ensures I can access my money if and when I need it.
I think the best way to do this is through a Stocks and Shares ISA.
Do you like the idea of dividend income?
The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over ?
Or you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…
Currently, I can invest £20,000 a year into a tax-free Stocks and Shares ISA, if I stay below this amount I won’t pay any tax on interest, capital gains, or dividends. This enables me to harness my ISA as a means to cultivate income, such as through dividend payments, with the added advantage of tax-free withdrawals for the entirety of my life.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
The beauty of compounding interest
With some carefully selected shares, I’m aiming for 10% annual returns. This may seem unremarkable at first, with the initial £100 monthly investment yielding a modest £174 profit after the first year. However, after 10 years, this will have grown to around £20,000, and after 30 years compounding interest will have secured me approximately £200,000 in savings. (These are only projections and could change significantly based on inflation rates and market volatility.)
If I can maintain my goal of 10% returns, my £200,000 nest egg should now be accruing interest of £20,000 a year on average. Even if I stop making monthly contributions at this point, it should increase to around £30,000 a year after another five years. At this point, I could potentially live off the interest alone without even having to rely on my pension. However, on top of my pension, this interest would equate to a sizeable amount of disposable cash for a comfortable retirement.
In 2044, the UK retirement age for state pension is set to increase to 68, so I think there’s still lots of time to capitalise on this strategy — even for those in their mid-to-late 30s.
Admittedly, such a long time frame lacks the excitement of making quick money off growth stocks. But for only £100 a month, I can still afford to make short-term investments in the stock market with some additional cash, if I so wish.
I’m aware that while my 10% return target aligns closely with historical averages, inherent risks such as poor investing or economic stagnation could make this goal challenging. But with my pension as a backup, I see this as a low-risk strategy to potentially secure a very comfortable retirement.
££££££££££££
Whilst achieving a yield of 10% on dividends, at the time of this post, is achievable but is at the high end of a risk plan.
The same 10% could be achieved buy adopting a lower risk plan (owning shares will always has risk attached to them) and re-investing the earned dividends to increase the yield on your portfolio. It will take longer but could be safer.
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Dr Martens declared a final dividend of 0.99p, taking the total dividend to 2.55p, down from 5.84p. It said it plans to pay the same again in financial 2025 before returning to its normal dividend policy of 25% to 35% of earnings from financial 2026 onwards.
