Octopus Renewables Infrastructure15 January 2025

Disclaimer

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by Octopus Renewables Infrastructure. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

 Overview Analyst’s  

ORIT’s broadly diversified renewables portfolio is significantly undervalued…

Overview

Octopus Renewables Infrastructure (ORIT) has the capacity to generate over 1400GWh , the equivalent of powering c. 360,000 homes , from its diverse portfolio of solar and onshore and offshore wind assets. The trust is managed by an experienced team with skills across the whole value chain from development, construction, operations, and finance. While 95% of ORIT’s portfolio is operational, about a quarter of that originates from development and construction projects led by the Octopus Energy Generation (OEGEN) team. ORIT’s assets are located in the UK, Ireland, France, Finland, and Germany.

ORIT currently yields c. 8.8% factoring its c. 34% discount. From the first year of full investment in 2021 ORIT’s dividend has been fully covered and risen in line with UK CPI inflation and is on target to repeat this in the financial year ending 31/12/2024. Over the next two years, 85% of ORIT’s cash flows are already fixed and over ten years, 50% of the income is inflation-linked.

Over the last year, ORIT has selectively disposed of assets with a value of £161m, at prices on average higher than the carrying value, providing additional confidence around the valuation of the assets and hence the NAV. One of the disposals also validates ORIT’s development and construction capabilities, having been taken through all the stages through to operational, before disposal above book value. The management team of more than 150 professionals have experience, going back to 2011, in development and construction projects in addition to operating and financial experience. While 95% of ORIT’s assets are operational, relatively small amounts of capital allocated to development can create significant value, and with strong dividend cover and selective disposals, ORIT does not need to resort to raising new equity in order to acquire new assets.

Analyst’s View

While ORIT’s discount of c. 34%, which is close to its peer group average, suggests that investor sentiment to this asset class remains weak, the trust has sailed through the period characterised by higher inflation and interest rates with the dividend increasing in line with CPI even at its highest point. One could regard this as a successful stress test for the portfolio, as we can imagine some investors may have been sceptical that inflation links would hold when inflation ran into double-digits, but hold they did, and the result flowed through to the dividend.

As the ORIT team notes, in a more difficult environment for raising capital, and with higher borrowing costs, ORIT’s ability to deliver on development and construction projects, with the potential to generate higher returns while utilising less capital, comes into its own.

ORIT’s discount to net asset value, c. 34%, means that in effect the market is saying that the discount rate implied by the portfolio valuation is c. 10%, rather than the 7.0% it actually is, with the abovementioned disposals providing real-world evidence of that latter figure. In our view, the unwinding of the discount over time is very likely to give investors, at this point a return, higher than ORIT’s target returns, and with a large part of this return generated through dividends, investors don’t need to rely on the discount closing in the short-term to achieve this.

Bull

• A high and rising yield. Dividend has risen in line with inflation
• A wide 34% discount but asset disposals at a premium to valuation help ‘prove’ the NAV
• Portfolio diversified by geography and stage, with returns potentially enhanced by ORIT’s development and construction projects

Bear

• Investor sentiment to renewables infrastructure trusts remains weak
• ORIT’s gearing could amplify losses as well as gains
• Development and construction are more risky than acquiring 

When the Nobel Prize-winning scientist Albert Einstein was asked to identify the most powerful force in the universe, he is said to have replied: “compound interest”. It’s no joke to say that the mathematical phenomenon of compounding – or the ability for gains to grow on gains and income to arise from income – provides a powerful tool for anyone seeking to accumulate wealth. However, you will need time to make it work.

Should I buy 29,761 shares in this FTSE 250 dividend REIT for £1,000 a year in passive income?
Story by Stephen Wright

High bond yields make this a good time to consider buying dividend shares and there are a few on my list at the moment.

One is Assura (LSE:AGR), the FTSE 250 real estate investment trust (REIT) with a lot of features that could make it a reliable source of passive income for investors.

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.

The equation
Over the last 12 months, Assura shares have fallen by around 23% and the share price has hit 36.26p as a result. With the firm set to distribute 3.36p per share this year, the implied dividend yield‘s 9.26%.

That means the amount someone would need to invest in order to generate £1,000 a year in dividends is £11,025. That’s £10,791 for 29,761 shares, plus £234 in stamp duty.

A falling share price and a high yield can be a sign investors are concerned about the firm’s ability to keep paying dividends. But if they’re wrong, this could be a great passive income opportunity.

A 9.26% yield is eye-catching with government bonds offering above 5%. So I think it’s well worth looking at the stock to see whether the returns actually might be more durable than the market realises.

The business
Assura owns and leases a portfolio of 608 GP surgeries and healthcare properties, the vast majority located in the UK. As a result, the firm gets almost all of its rental income from the NHS.

From a passive income perspective, this could be a very good thing. An organisation backed by the UK government is unlikely to run out of money, making the risk of rent defaults relatively low.

It does however, mean the risk of a change in government policy is quite significant. But for the time being, things seem to be moving in the right direction in terms of UK healthcare policy.

Growth typically comes from developing and expanding existing properties rather than acquiring new ones. But the company did acquire a portfolio of hospitals last year at a cost of £500m.

Risks and rewards
As is often the case with REITs, the biggest risks with Assura come from its balance sheet. It has a lot of debt and the average time to expiry is less than five years.

REITs have limited options when it comes to managing their debts. Being required to return 90% of their taxable income to shareholders means they can’t use it to repay outstanding loans.

But Assura’s making moves to bring down its debt levels by selling off some of the properties in its portfolio. However, this obviously means less in the way of rental income.

A company with reliable rental income should be able to manage a higher debt load than one with more volatile tenants. But I think this is the biggest risk for investors to pay attention to.

Should I buy ?

I currently own shares in Primary Health Properties in my portfolio, which is a very similar business. Adding Assura could help maintain a similar income stream while reducing company-specific risks.

On that basis, buying 29,761 shares to look for a £1,000 a year second income doesn’t seem like a bad idea. It’s definitely one I’m considering for my Stocks and Shares ISA.

The post Should I buy 29,761 shares in this FTSE 250 dividend REIT for £1,000 a year in passive income? appeared first on The Motley Fool UK.

If you’re looking for Investment Trusts with high yields, here are some options that might interest you:

1. Henderson Far East Income (HFEL): This trust focuses on Asia Pacific equities and offers a yield of 10.3%.
2. Marwyn Value Investors (MVI): Specializing in UK smaller companies, this trust has a yield of 9.9%.
3. British & American Investment Trust (BTA): This global equity income trust offers a yield of 8.5%.
4. Chelverton UK Dividend Trust (SDV): Focusing on UK equities, this trust has a yield of 7.4%.
5. abrdn Equity Income Trust (AEIT): This UK equity income specialist offers a yield of 7.2%.
6. BlackRock Latin American Investment Trust (BRLA): Investing in Latin American equities, this trust has a yield of 7.1%.
7. Premier Miton Global Renewables Infrastructure Securities (PMGR): This trust focuses on global renewable infrastructure and offers a yield of 6.9%.
8. European Assets Trust (EAT): Specializing in European smaller companies, this trust has a yield of 6.8%.
9. Lindsell Train Global (LTG): This global equity income trust offers a yield of 6.7%.
10. Caledonia Investments (CLDN): A multi-asset trust with a yield of 6.0%.

These trusts offer attractive yields, but it’s important to consider other factors such as the trust’s performance, management, and your own investment goals. Consulting with a financial advisor can also help you make informed decisions.

But as always best to DYOR and check the yields posted above.

The first quarter fcast income is £2,250.00, which would generate income for the year of 9k. As the earned dividends are re-invested that should equal the income fcast of £9,120. All subject to change.

Cash for re-investment £343.00

The Milky Way at night, over Porthgwarra beach in Cornwall© Provided by The Motley Fool

Warren Buffett famously said, “If you don’t find a way to make money while you sleep, you will work until you die”.

Here’s my simple plan geared towards achieving this goal.

Focus on the long term

Rome wasn’t built in a day, as the old cliché goes. It’s going to take time to construct a portfolio large enough to generate sizeable passive income.

To me, then, 2025 is just another year of building up my portfolio. This Foolish perspective helps me avoid taking unnecessary investing risks.

The opposite to this approach is to try and make as much money as quickly as possible. But this might lead me towards meme stocks, pre-revenue penny shares, and other high-risk/high-reward ideas.

Ironically though, following this get-rich-quick strategy means I could end up with far less than I started with. As Buffett also famously said, “Rule number one: never lose money. Rule number two: Never forget rule number one“.

A 12.65% yield? Here’s the dividend forecast for this FTSE income share

Jon Smith talks through the2026/27 dividend forecast for an income stock that already has a double-digit yield but could go even higher.

Posted by

Jon Smith

FSFL

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.

We might have only just inched into 2025, but looking ahead to 2026 and 2027 provides the opportunity for investors to weigh up dividend forecasts for potential shares worth purchasing.

One company with a high-yield looks like it could increase even more in the next couple of years. Here are the details for consideration.

Renewable energy gains

The firm in focus is the Foresight Solar  (LSE:FSFL), a member of FTSE 250. Its management team’s focused on generating income for investors by owning and managing a portfolio of solar energy assets. More specifically, it makes money from the sale of electricity generated by its solar farms, mostly via power purchase agreements (PPA) with suppliers.

Over the past year, the share price is down 30%, with the dividend yield at11.2%. The current yield makes it one of the highest income options in the entire index.

It typically pays out a dividend each quarter, and increases the amount per share once a year. For example, in 2022 it was 1.74p, in 2023 it rose to 1.78p, and for the past few quarters it’s been 2.0p.

This trajectory’s appealing for income investors, as there’s a track record of increasing payments, which in turn helps to increase the dividend yield (assuming no wild movements in the share price). The dividend cover’s currently around 1.0. This means that the earnings fully cover the dividend payment. This is a good sign.

Looking forward

According to analyst expectations, the upcoming June declared dividend could rise to 2.1p per share. In June 2026, this is expected to rise to 2.19p, with June 2027 at 2.27p.

So if I assume the share price stays at 70.5p, this could mean the yield for calendar year 2026 would rise to 12.17%. For 2027, this could rise to 12.65%.

Of course, I do need to be careful when looking out for the next two years. It’s unlikely the share price is going to stay at the same level. If the stock falls, the yield will increase further. But if the share price jumps, then the yield could be lower than my forecasts. So investors need to take things with a pinch of salt!

Noting down concerns

There are risks associated with this stock to be aware of. For example, the drop in the share price over the past year has been attributed to lower power prices. This cuts the revenue potential for the company. Further, these large-scale solar projects are partly financed with debt. The fact that interest rates have stayed higher for longer in the UK means future borrowing will be more expensive than previously planned.

Even with these risks, the yield’s very attractive. If investors are aware of the potential concerns, I think it would be a good income stock to consider for the coming few years.

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Current yield 10.6%

Here’s how I’m trying to build up my ISA to earn £10,000 passive income each year

I’ve been working to build some passive income for my retirement for years. Here’s how I’m using the stock market for my goals.

Posted by Alan Oscroft

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.

I’m convinced I know my best chance of building passive income from long-term investments. I reckon it has to be a Stocks and Shares ISA.

It does open me up to more risk than a Cash ISA, as they offer guaranteed interest rates. Well, for as long as the latest contract, at least. But when the Bank of England (BoE) gets inflation down to its target 2%, I think we’ll be lucky to see Cash ISA rates much above 1%.

I don’t see much point trying to save the tax on that level of income, not when total FTSE 100 returns have averaged something like 6.9% per year over the long term. It’s not guaranteed, of course, but history is behind it.

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.

Bad spells

To take home £10,000 a year from my ISA, I’d like to be able to not run down my capital too much. If the BoE meets its inflation target, I’d want to leave enough in my ISA to match.

That suggests I could take 4.9% of the average 6.9% per year, and leave the other 2% to keep up with rising prices. So how much might I need?

My sums suggest a pot of around £204,000. If the UK stock market keeps on going the way it has for the past century or so, I should be able to take my £10,000 from that and leave enough to keep up with inflation.

If you want to buy a Gilt held in a tax free wrapper, look at the higher yielders for your required time frame.

If held outside a tax wrapper, look at the lower coupons as tax is payable on the dividend (coupon) but all capital gains are tax free.

Remember the golden rule, the income is secure and the capital is secure if held until maturity.