Dividend stocks are an important part of a diversified portfolio. They provide passive income under almost any conditions, which strengthens your portfolio and protects your money in changing economies.
Younger investors may want to focus more on growth, and retirees tend to switch to more dividend stocks. Whichever category you’re in, if you’re looking for excellent dividend stocks, consider Realty Income (NYSE: O), Home Depot (NYSE: HD), and Coca-Cola (NYSE: KO).
1. Realty Income: All the right features plus monthly payments
Realty Income is a top dividend stock that has an excellent business, high yield, and growing dividend, and it also has the added perk of cutting a monthly check.
It’s a real estate investment trust (REIT), a business structure for companies that own and lease out rental properties. Realty Income is one of the largest REITs in the world, with more than 15,000 properties that it leases mostly to retailers. Its top 20 tenants include brands like Walmart and CVS, chains that do well in most circumstances and can keep up their leases. Although it touts that as an obvious advantage, it has also expanded to other categories through recent acquisitions and contracts.
It made a recent deal with Wynn Resorts, and 14% of its properties are in the industrials category. However, retail accounts for nearly 80% of the total, with grocery and convenience stores accounting for almost 20%. In other words, it has a stable and growing business, which is important in a dividend stock.
Another reason to be confident about Realty Income’s ability to pay and grow its dividend is its extensive track record. It has paid a dividend for 655 months consecutively, and raised it 128 times since going public in 1994.
The dividend yields 5.9% at the current price, or more than 4 times the S&P 500 average. It’s an excellent dividend pick for just about any investor.
2. Home Depot: The industry leader
Home Depot is the largest home improvement chain in the world. It has 2,300 stores in the U.S., Canada, and Mexico, and it’s opening new ones, although at a slow pace. People always need home improvement products, providing organic growth opportunities for Home Depot all the time.
The company has been challenged by the pressured housing market, but when people aren’t moving they also have home improvement needs, since they might need more home maintenance in their current digs. Sales increased 6.6% year over year in the 2024 fiscal third quarter (ended Oct. 27), but comps were down 1.3%. Operating margin and net income were both down from last year but beat expectations.
Home Depot is constantly upgrading its platform and converting to a heftier omnichannel model to meet today’s consumer needs. It recently unveiled a larger regional distribution network with 19 fulfillment centers across the country, and it can reach 90% of its customers with same- or next-day delivery. The company launched a marketing campaign to highlight its reach and is already seeing results in higher conversions and incremental sales.
The underlying strength of this business supports its excellent dividend. It yields 2.2% at the current price, well above the S&P 500 average, and it has increased more than 280% over the past 10 years.
3. Coca-Cola: The Dividend King
Coca-Cola is the great dividend stock, a Dividend King, and the company has raised its dividend annually for the past 62 years, under all kinds of circumstances. It’s totally committed to the dividend, and its payout ratio reached more than 100% early in the pandemic when sales plunged.
It’s the largest all-beverage company in the world, and it reaches customers in 200 countries all over the world. It has pricing power in its loved brands, which is why Coca-Cola is so reliable for strong performance. It’s the top worldwide brand in the non-alcoholic, ready-to-drink category, and it has developed all kinds of packaging and pricing changes to entice its fans even in the inflationary climate. Revenue dropped 1% in the 2023 third quarter, but organic revenue was up 9%.
Coca-Cola has opportunities in acquiring new brands and capturing greater market share, and it has organic growth potential in its diverse beverage categories that include sparkling drinks, dairy, juice, coffee, and more.
The dividend yields 3.1% at the current price, and it’s an excellent choice for a reliable, high-yielding stock.
Regional REIT, the regional office specialist, is pleased to provide an update on the continued return to the office.
Office active occupation[1] is now ahead of the pre-pandemic level[2] as companies encourage staff back to the office.
· Current active office occupation has increased to 75.3% from 71.4% (February 2024), above pre-pandemic active occupancy, estimated at 70%.
· Employee occupation remains high at an average of 4 days per week (February 2024: 4 days per week).
The survey is the largest of its kind from the largest owner of regional office assets and is based on the Company’s tenants in 112 buildings across the office portfolio. The properties provide space for a broad range of different business sectors that are geographically spread across England, Scotland and Wales.
The survey’s results are based on a 74.5% response rate (by rent), with over 28,000 employees having taken part and demonstrate a continuing improvement in the return to the office trend, which is confirmed by other recent reports and studies. For example, a report by Virgin Media O2 Business Movers Index[3], tracking commuting behaviour in the UK, reported that the number of companies requiring employees to work from company premises three or more days a week has increased to 75% in 2024 from 67% in 2023. Firms in the study seeking staff back in the office for at least four days a week also increased to 50%, up from 46% previously. Nearly 40% of British workers now commute five days a week according to the study.
[1] Active occupation being the average desk occupancy during business hours. For example, if a company had 100 desks, then on average during business hours 75 desks would be occupied, with the balance unoccupied due to absences from holidays, illness, or out of the office on business.
[2] Savills, European Office Occupancy March 2023
[3] Virgin O2 Business Movers Index Q3 2024
Stephen Inglis, Asset Manager of Regional REIT and Head of ESR Europe LSPIM, commented:
“Our latest annual survey further confirms the significant and increasing role that ‘the office’ plays in ongoing business life, further building on the positive trends that we observed in our previous tenant surveys.
An increase in active occupation, in tandem with employees back in the office for an average of four days per week, demonstrates a clear positive trend and an encouraging backdrop for the regional office market. This will over time, result in improving demand for office space and with limited supply, will result in improved occupancy in the UK office markets and rental growth.”
– ENDS –
About Regional REIT
Regional REIT Limited (“Regional REIT” or the “Company”) and its subsidiaries (the “Group”) is a United Kingdom (“UK”) based real estate investment trust that launched in November 2015. It is managed by ESR Europe LSPIM Limited, the Asset Manager, and ESR Europe Private Markets Limited, the Investment Adviser.
Regional REIT’s commercial property portfolio is comprised wholly of income producing UK assets and comprises, predominantly of offices located in the regional centres outside of the M25 motorway. The portfolio is geographically diversified, with 131 properties, 1,303 units and 808 tenants as at 30 September 2024, with a valuation of c.£648.8m.
Regional REIT pursues its investment objective by investing in, actively managing and disposing of regional Core and Core Plus Property assets. It aims to deliver an attractive total return to its Shareholders, targeting greater than 10% per annum, with a strong focus on income supported by additional capital growth prospects.
The Company’s shares were admitted to the Official List of the UK’s Financial Conduct Authority and to trading on the London Stock Exchange on 6 November 2015. For more information, please visit the Group’s website at http://www.regionalreit.com
The Results Round-Up: The week’s investment trust results
Only two companies in this week’s round-up: global fund Bankers (BNKR) and capital preservation trust Ruffer (RICA). Unsurprisingly, of the two BNKR, the standout in performance terms with NAV total return up +21.1% for the year. By contrast RICA’s NAV total return for the 12 months to 31 December 2024 came in exactly flat, a 0.0% return for the year, now that’s an achievement in its own right.
By Frank Buhagiar
Bankers (BNKR) cautiously optimistic
BNKR’s full-year net asset value (NAV) total return came in at an impressive-looking +21.1%. Share price equivalent fared even better, up +21.4%. Both however could not quite match the FTSE World Index’s total return of +26.1%. But, as Chair Simon Miller points out, “It is worth noting that only a few investment funds have outperformed our global benchmark index this year.” That’s down to market returns being dominated by those Magnificent Seven and their flying share prices which powered a +30.3% increase in the US market in sterling terms during the year, around double the return from European and Japanese stocks. Stock selection in the US and an underweight exposure to the US market cited as reasons for the shortfall when compared to the benchmark. Steps have been taken to address the US underweight – BNKR’s exposure to US equities had been increased to 50% by year end from 40% previously and currently stands at 60%. “We hope to see improved performance relative to the benchmark next year as a result of these changes” says Miller.
And that’s not the only reason why Miller is optimistic for the year ahead “I have cautious optimism about the future. The prospect for further interest rate cuts on the back of lower inflation gives credence to the view that this year’s performance will not be given up next year. The new administration in the US appears focused on growth and reform, which will be welcomed by many businesses there.” So “Provided the economic outlook prevails, Bankers is in strong position to take advantage of a broadening out in markets.” Shares were up a cautiously optimistic 1.2p to 122p on the day of the results.
Numis: “The shares have been trading in double-digit (discount) territory in recent months (currently c.9%) and given the market backdrop of activism we would expect buybacks to be active to seek to prevent any widening of the discount.”
JPMorgan: “Bankers of today benefits from an attractive combination of low costs, long term low cost fixed rate debt and trades at a slightly wider than average discount in its peer group with the board making significant buybacks. But we think an improvement in the relative NAV performance is the one factor that is likely to see a sustained narrowing of the discount. We remain Neutral.”
Ruffer (RICA) keeping hold of its protective armoury
RICA’s investment managers gave the market their usual heads up on the fund’s performance outside of the formal financial results calendar: over the six-month period to end of December, NAV total return came in at -0.4%; share price total return +0.2%. That means NAV total return for the 12 months to 31 December 2024 was 0.0%, while share price total return was -0.7%. Longer-term performance reads better: the annualised NAV total return since inception in 2004 stands at +6.7% while total return since inception is +276.6%. For comparison, the FTSE All-Share has generated an annualised total return of +7.3%. But, as the investment managers write, “There is no denying we are at a painful moment for Ruffer and our shareholders. After four strong years from 2019 to 2022 when the NAV total return annualised over 10%, investors have now experienced two consecutive losses in share price terms. So where have we gone wrong?”
The investment managers put the performance down to “tension between the cyclical and the structural. On the cyclical, we have been proved wrong – there was no recession, but there was an aggressive disinflation and a resurgence in animal spirits. On the structural? Sticky inflation, financial stability preferred to monetary stability, geopolitical fracturing, the rise of populism and state directed capitalism – so far, spot on.” According to the managers, it’s a question of timing “We view this as an intertemporal snag. We currently see the elastic band which tethers prices and fundamentals as stretched taut, with the potential for an aggressive snap back.” And if that happens “a redemptive performance moment” can be expected. As the managers point out “We have been in this uncomfortable position before. We do not attempt to time every market turn, but we do seek to ensure the portfolio’s protective armoury is in place when we sense moments of danger”. Shares added 1.5p on the day to 271.5p – investors wanting exposure to that protective armoury too, it seems.
Numis: “Ruffer IC is managed by Duncan MacInnes and Jasmine Yeo with a capital preservation mind-set. The fund has a strong long term track record of delivering consistent growth with low volatility. The nature of the portfolio means that the NAV will inevitably lag if equity markets remain strong, but we believe that the fund can be regarded as an attractive portfolio diversifier as Ruffer has a record of insulating against market falls, most notably during 2022, Covid-19 and the global financial crisis.”
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The Saba Saga dominates the Tip Sheet with The Telegraph strongly defending the track records of two of the US activist’s targets— Herald (HRI) and The European Smaller Companies Trust (ESCT). As The Telegraph points out, HRI is a great success story that has turned £1000 at launch in 1994 to £24,200 today, while, ESCT has beaten its benchmark in 12 of the last 13 years.
By Frank Buhagiar
Questor – One of the great success stories of the UK’s investment industry is under attack
No prizes for guessing the above Telegraph article focuses on one of the seven funds currently being targeted by Saba Capital. Herald Investment Trust (HRI) launched in 1994, £65m was raised to plough into global small-cap technology and communications stocks. A further £30m was subsequently raised in 1996. Fast forward to today and HRI has grown its assets to around £1.2bn and that’s despite returning hundreds of millions to investors via share buybacks on the way. The share price performance is equally impressive: a £1,000 investment at launch would now be worth £24,200 or £26,000 had warrants that came with the original share issue been exercised. As Questor points out “That is a long way ahead of the return that you would have achieved tracking the UK small-cap market or even a US small-cap technology index.”
And yet, despite producing the goods for long-term investors, HRI is one of the seven investment trusts in which Saba Capital has accumulated a large stake in (20%) and is one of those named by the US activist in its 18 December 2024 announcement calling for general meetings to be held and wholesale changes to the Board to be made. Saba’s plan appears to be to replace the current directors with its own nominees, become the investment manager and change the mandate to one that targets other UK-listed trusts, “As a minimum, it seems to want to force these companies to give it a cash exit at NAV, which is likely to make it a fast buck”.
Notwithstanding the loss of a much-needed and respected investor in the UK technology sector— UK stocks account for 35% of the portfolio—Questor believes the Saba attack needs to be seen off by shareholders because “taking a longer-term view, the performance gap between small cap and large cap tech seems overstretched. The existing investment approach could deliver attractive returns in the coming years and prove far more lucrative than Saba’s self-serving agenda. Shareholders in Herald and the other Saba targets need to ensure that their voice is heard, and this US corporate raider is sent off with its tail between its legs.” Strong stuff and with good reason.
Questor – Europe is in a mess – here’s how to take advantage
HRI, not the only member of the Saba Seven to get a favourable write-up from Questor. So too, The European Smaller Companies Trust (ESCT). Like HRI, ESCT invests in small-cap stocks and like HRI, it has done a good job of it too. Since July 2011 when Janus Henderson’s Ollie Beckett took over as manager, the portfolio has returned +263%, easily beating the +176% generated by the MSCI Europe ex UK Smaller Companies index. In all, the fund has beaten its benchmark in 12 of the last 13 years and over the past decade is the second-best performing European-focused investment trust.
That stellar record, testimony to the manager’s approach that is centred around identifying mispriced stocks from a pool of around 2,000 companies with sub-€7bn (£5.8bn) market caps at the time of investment. It’s an approach that is style agnostic, namely there is no ‘growth’ or ‘value’ focus which in practice means it has a higher exposure to ‘value’ stocks than its more growth-oriented peers.
But, as Questor points out, that strong track record is under threat following Saba’s stake building— Saba says it owns 29.1% of the fund—particularly if the activist investor gets its own way at the upcoming general meeting. As with HRI and the other five funds, Saba is looking to appoint its own directors “then through them impose its will on minority investors. To achieve this, it needs the support of over 50% of those voting.” Bearing in mind the fund’s track record “Questor would be surprised if the shareholders that have stuck by the European Smaller Companies Trust through the lean times would wish to lose the prospect of a recovery in its fortunes.” The stakes are therefore high and nothing can be taken for granted. That’s why “it is important that shareholders vote, as Saba is likely relying on a low turnout to boost its chances of winning.” Shareholders, you have been warned.
NextEnergy Solar Fund – Well covered, growing, double-digit yield
QuotedData
NextEnergy Solar Fund : NESF
Matthew Read
Well covered, growing, double-digit yield
Despite having many attractive features, NextEnergy Solar Fund (NESF) has seen its share price derate significantly during the last two years (driven largely by macroeconomic headwinds, such as the impact of higher interest rates on income-producing assets, which has affected the whole renewable energy sector and has been a factor again very recently). A hefty and, in our view irrational, discount has opened up, bringing with it significant yield expansion – NESF now has the second-highest yield in the FTSE 350 – despite its dividend being 1.3x cash-covered during FY2024, with a coverage target of 1.1x – 1.3x for FY2025 on a higher target dividend.
NESF has been making progress with its capital recycling programme (see page 7), with the proceeds used to reduce debt and fund share repurchases that, at current discount levels, are very NAV-accretive. The final phase for 100MW of assets could prove transformational.
Income from solar-focused portfolio
NESF aims to provide its shareholders with attractive risk-adjusted returns, principally in the form of regular dividends, by investing in a diversified portfolio of primarily UK-based solar energy infrastructure and complementary energy storage assets. Since IPO, NESF has paid £370m of ordinary dividends – roughly its market cap – highlighting its strength as a total return play.
Year ended
Share price TR (%)
NAV total return (%)
Earnings per share1 (pence)
Dividend per share (pence)
Cash dividend cover (x)
31/03/2021
4.9
7.2
6.32
7.05
1.1
31/03/2022
11.4
23.1
17.34
7.16
1.2
31/03/2023
8.2
7.2
7.55
7.52
1.4
31/03/2024
(25.1)
(1.4)
(1.42)
8.35
1.3
31/03/2025
8.4322
1.1-1.33
Source: Morningstar, Marten & Co.
Note 1) Fully diluted.
2) Target dividend for FY2025.
3) Forecast cash coverage of target dividend as per the company’s announcement on 15 May 2024.
Portfolio update
Spanish and Portuguese co-investments energised
NESF has invested $50m in NextPower III ESG – a private solar infrastructure fund that owns international solar assets – that targets gross IRR between 13 and 15% on its investments. This is significantly above the level that UK solar funds are offering.
Shortly after we last published, NESF announced that its first two international solar co-investments, in which it invested alongside NextPower III ESG, had been energised. The assets are a 210MW solar project in Portugal (Santarém) and a 50MW solar asset in Cadiz, Spain (Agenor). NESF directly owns 13.6% of Santarém, 24.5% of Agenor, and 6.21% of NPIII ESG. Both assets have long-term PPAs with Statkraft (Santarém’s PPA is the largest in Portugal’s history).
NESF’s manger highlights that the investment in NextPower III ESG gave NESF instant international diversification (the fund owns development-stage and operational assets in OECD countries), removing the need for NESF to have its own teams on the ground around the world. NextPower III ESG now has 102 operating assets, and the co-investment opportunities that NESF is able to access have the additional benefits of no management fee and no carry. This is a differentiating factor for NESF versus its peers.
Battery storage
Camilla 50MW standalone battery project online
Since we last published, NESF has brought Camilla, its first standalone battery project, online. This is also the first project from its JV with Eelpower (the JV is 70% owned by NESF and 30% by EelPower). The 50-MW lithium-ion BESS asset, located in Edinburgh, is a one-hour battery, but has been pre-augmented for two hours so any upgrade to this should be plug-and-play. BESS assets have a very different revenue stack to solar, and this asset is very complimentary to NESF’s existing portfolio (BESS asset revenues are much volatile but can be much higher than those from solar, which is very stable). With its investment in NextPower III, NESF has exposure to 1.8GW of batteries. NESF’s manager highlights that it is the only renewable generator that has a utility scale battery online at present and that this is approaching its one-year operating anniversary in March 2025.
Two out of five assets sold at a premium, adding 1.84pps to the NAV.
NESF has sold three of the five assets – Hatherden (November 2023), Whitecross (June 2024) and Staughton (November 2024) – earmarked for its capital recycling programme. These were all at premiums to their carrying values in the NAV, adding 2.76p cumulatively to the NAV. The three sales have raised £72.5m, of which £38.8m has been deployed to pay down NESF’s RCFs, with c £4m used to repurchase shares (see page 7). However, NESF plans to look at alternative uses for the proceeds (for example, NAV-accretive investments) as the discount narrows.
Prior to the sale of all of these assets, NESF had added considerable value to both through its initiatives. For example, at Hatherden, approval for co-locating battery storage on the site was achieved, while an AR4 contract was secured for Whitecross. It adds that the latter had a very small snag list, so was very easy to sell.
NESF’s manager marketed the five assets as a portfolio but received more interest for the assets individually.
NESF’s manager says that it is taking its time with the disposal of the remaining two assets, which will be sold together in phase IV (the final phase), and exclusive negotiations are continuing with third-party bidders. It adds that it is seeing many pricing points in the market that are proving NESF’s NAV and there are superior valuations in the secondary market, versus the listed space, which in its view is being over-cautious.
Gearing – very attractive long-term preference shares
As at end September 2024, NESF had £333.3m of debt of which £156.4m was long-term debt at fixed rates. It also had £198.4m of long-term preference shares. Total gearing was 48.2% of GAV including the preference shares (the limit is 50%) and 29.1% excluding them. The weighted average cost of debt was 4.9% including the preference shares. As noted on page 3, the bulk of the proceeds of the capital recycling programme have been used to reduce NESF’s floating rate debt and, while this is the more expensive of NESF’s debt sources, the financing provided by the RCFs is still very competitive at SONIA + 1.2%–1.5%, reflecting NESF’s scale and creditworthiness. Both RCFs were refinanced in March and April this year on existing terms or better.
The preference shares remain an attractive source of finance in the current environment. While they have an indefinite life, they can be redeemed at par or converted to equity in 2036 and there could be significant upside from this (the managers describe it as a great form of non-amortising debt). NESF has been amortising long-term debt across the remaining life of its subsidiaries.
ESG, including sustainability and biodiversity
NESF is an Article 9 fund
As a reminder, NESF is an Article 9 fund under EU SFDR and Taxonomy. During the year ended 31 March 2024, its renewable generation had avoided the production of 279.3 ktCO2e. As we have previously highlighted, if the UK is to meet its net zero targets, much more needs to be done and NESF is keen to play its part in this. Its manager, NextEnergy Capital is the largest specialist solar manager, managing c$4.4bn of solar assets across its key OECD target markets, and aims to be at the forefront of developments in the space. Ross Grier (chief operating officer and head of UK investments at NextEnergy Capital) sits on the UK government’s Solar Taskforce, which was established to drive forward the actions needed to meet the government’s ambition to achieve clean power by 2030. published its third standalone sustainability and ESG report
In June 2024, NESF published its third standalone sustainability and ESG report. NESF is keen to highlight its commitment to biodiversity and 81% of its portfolio assets have enhanced biodiversity measures. New habitat provisions comprise 27 bat boxes, 35 beehives, 78 bird boxes, 131 bug hotels, 32 hibernacula, 35 kestrel boxes, six owl boxes and 1,246 shrubs planted. NESF also provided community funding of £106k and donated £339k to the NextEnergy Foundation in cash and solar modules during the last financial year.
NESF published its first nature strategy report in November 2024. Key elements set out in the report include: an SBTN-aligned commitment to prevent the material loss of natural ecosystems in direct operations and supply chains; a responsible land use target including nature implementation plans and dual land use regimes; a nature restoration target to restore natural ecosystems in the regions where NESF operates that need support; and updated nature-related risk management procedures for supply chain transparency and sustainability.
Performance
The end-September NAV was 97.8p – down from 101.3p as at the end of June, 107.3p at end March 2024 and 107.7p as at end December 2023. The main negative drivers between end-June and end-September were lower than budgeted generation due to lower-than-expected irradiation (-2.1p) and changes in power prices forecasts (-3.0p), with changes in short-term inflation costing an additional 0.1p. On the positive side, time value, the sale of Whitecross, share buybacks and the revaluation of NextPower III added 7.7p, 0.6p, 0.2p and 0.1p respectively.
The main negative drivers of the reduction between end-March and end-June were lower than budgeted for generation due to lower-than-expected irradiation (-1.7p) and changes in power prices forecasts (-1.2p), although changes in short-term inflation added 0.4p and the revaluation of NextPower III added 0.1p.
The main negative drivers of the reduction between end-December and end-March were changes in power prices forecasts (-2.7p – mainly due to lower commodity prices – particularly gas, which sets the marginal price of electricity – which was down c.30-40%, influenced by above-average gas storage levels, milder weather across winter 2023/24 and sustained reductions in demand) and lower than budgeted for generation (-1.7p). Furthermore, although changes in short-term inflation added 0.3p, the revaluation of new assets added 1.6p and the revaluation of NextPower III added 0.7p.
Weighted average discount rate is 8.0%.
NESF did not make any changes to its discount rate assumptions for the quarters ended either 31 March 2024, 30 June 2024 or 30 September 2024. On 21 November 2024, NESF said that, for the quarter ended 30 September 2024, it had:
updated its inflation assumptions to reflect the latest-available third-party inflation data from HM Treasury Forecasts and long-term implied rates from the Bank of England for its UK assets; and
updated its power price forecasts capturing the latest-available third-party adviser long-term power curves.
NESF made the same statements for the previous two quarters, but, for the end-March valuation it also said that it had introduced new discount rate assumptions for its new 50MW operating energy storage asset, Camilla, which were in line with energy storage investment company peers. This increased NESF’s weighted average discount rate at 31 March 2024 slightly to 8.1% (31 December 2023: 8.0%), and it has remained at the level for the end-June and end-September valuations.
Potential upside in power curve assumptions
NESF uses a weighted average of the prices from three power forecasters in arriving at its own power price assumption. However, the manager believes that there is considerable upside that is not factored into these, for the following reasons:
the power price forecasts assume that cheap nuclear generation comes in on time and on-budget, which feels unrealistic given the history of large-scale infrastructure projects in the UK, particularly nuclear;
the assumptions do not fully capture the impact of the electric action of heating and roll-out of EVs in the manager’s view; and
there is now allowance for shocks to the system; for example, events such as the invasion of Ukraine, which overall tend to impact power prices positively from a generator’s perspective, factored in.
The manager says the situation is actually quite exciting and not as doom-and-gloom as the predictions suggest.
Dividend – second highest yield in the FTSE 350 Index
Figure 1: Dividend and cover
Source: NextEnergy Solar Fund. Note: 1) For financial years ended 31 March. 2) Cash dividend cover is pre scrip dividends.
NESF has 10 years history of paying a growing cash-covered dividend. For the year ended 31 March 2024, NESF paid a total dividend of 8.35p per share, which is a yield of 13.1% on its share price of 63.9p as at 15 January 2025. This is the second-highest yield in the FTSE 350 Index (the highest, Ithaca Energy, is artificially inflated and uncovered, as it is honouring a pre-IPO commitment to distribute US$400m of dividends for FY 2023).
NESF has about 150m retail investors on its share register (around 26% of the total) and its board is acutely aware of the importance of income to these investors. NESF’s board sets a target for the year (usually announced in November as part of the interim accounts) which considers five-year forecasts of revenues and costs and allows for a sensible progression of the dividend over time that is both covered and sustainable. The target for the year 31 March 2025 is 8.43p per share, with forecast coverage of 1.1x-1.3x. The first and second quarterly interim dividends of 2.1p per share were paid on 30 September 2024 and 31 December 2024 respectively. Dividend cover for the first half was 1.5x.
Share price discount
The impact of the shifting sentiment on UK interest rates on NESF’s discount remains an obvious feature of Figure 2. Recent figures have shown inflation, while much reduced over the last couple of years, to be more stubborn than was expected even in the middle of last year. This has, at the margin, extended the higher interest rates for longer narrative, which has weighed on the discounts of all of the renewable energy funds, NESF included – leaving them all close to or at long-term discount highs.
As is illustrated in Figure 2, NESF’s discount remains very wide relative to its own history, offering significant narrowing potential, when interest rates retreat (something we started to see when inflation fell previously) and share repurchases continue. We also see potential for NAV growth through NESF’s capital recycling initiative. However, we still think that one of NESF’s key attractions is the size of its yield, which is covered and supported by its attractive terms on its preference shares debt. We also see potential upside from the resolution of the cost disclosure issues that have plagued the sector, which should hopefully stem selling by professional investors.
Figure 2: NESF premium/(discount) to NAV
Figure 3: Share net issuance/repurchases
Source: Morningstar, Marten & Co
Source: NextEnergy Solar Fund, Marten & Co
£20m share buyback programme
NESF has been very active, repurchasing a modest amount of shares most days.
On 18 June 2024, NESF announced that it was launching a £20m share buyback programme designed to help narrow the discount to NAV. As is illustrated in Figure 3, since the programme’s launch, NESF has been very active in repurchasing its own shares, buying back 10.9m shares, equivalent to 1.8% of its issued share capital. These purchases are strongly NAV-accretive, given the prevailing discount. All of the repurchased shares are held in treasury.
Board update
Board completely refreshed as 10-year anniversary passed.
Since we last published, Caroline Chan has been appointed as chair of the management engagement committee and Jo Peacegood has been appointed as chair of the audit committee, following the retirement of Patrick Firth (who had served his full nine-year tenure). The chairwoman, Helen Mahy, was previously the chair of TRIG and Paul Le Page is ex-Bluefield. Both joined the board in 2023.
