This 7.6% Dividend’s New “Rights Offering” Lets Us Buy Cheap (for Now)

Brett Owens, Chief Investment Strategist
Updated: September 30, 2025

We contrarians live for the “one-off” shots at extra income (or gains!) our favorite dividend plays throw our way.

One of these “special situations” just landed in our lap: A shot at buying a megatrend-powered 7.6% dividend that’s rarely cheap. And we’re picking it up for a song.

It’s a long-time holding of our Contrarian Income Report advisory, and it’s sitting right in the tracks of the surging AI buildout. In fact, it may be the last “cheap” AI play on the board! This one’s dropped from trading for more than its portfolio is worth to a lot less.

A 7.6% Dividend Bargain We Haven’t Seen Since 2020 

As you can see, this fund dropped from trading 6% above its net asset value (NAV, or the per-share value of its portfolio) to 7.1% below, as of this writing.

It’s a huge drop, and it stands out because, as you can see above, this fund, the 7.6%-yielding Cohen & Steers Infrastructure Fund (UTF), is rarely cheap for long.

Rock-Solid 7.6% Dividends Rarely Get This Cheap, This Fast 

UTF’s latest tour in our Contrarian Income Report portfolio started in November 2020, and this reliable utility fund has been humming away since, handing us a 7.8% yield on our original buy, plus a monthly payout that’s rolled in like clockwork.

 Source: Income Calendar

That’s exactly what we bought it to do. And it’s handed us a 41% total return in that time, too. And now we have a shot at buying it cheaper than we did five years ago!

Let me put all of this in dollars and cents for you.

In the past year, UTF’s average premium has been 1.8%. If the discount reverts to that level, price upside of around 10% is on the table here. And that’s before we factor in the growth of its portfolio. Let’s talk about that now.

From Falling Rates to “Back Door” AI Gains

We bought UTF in late 2020 because its utility-stock holdings—including big players like NextEra Energy (NEE), Duke Energy (DUK) and Southern Co. (CO)—are essentially “bond proxies.”

When rates fall, as they did then, utilities rise. Nowadays, we have a similar setup. As we discussed in last week’s article on some of our favorite gold dividends, long rates are essentially capped, and short-term rates (controlled by the Fed) are falling.

Plus we have another, far bigger driver: AI’s limitless power demand.

Let’s take Texas, ground zero for the AI power boom. Microsoft (MSFT), Alphabet (GOOGL), Amazon.com (AMZN) and Meta Platforms (META) have built data centers there. According to the Electric Reliability Council of Texas (ERCOT), Texas alone expects a 62% surge in power demand by 2030 as these data centers multiply.

That’s just one state, utilities nationwide are racing to add capacity.

The Deal on the Discount

To be sure, this AI-utility trade is far from a secret, so why the discount on UTF?

Look at the chart below. In orange, we have UTF’s total NAV return (again, the value of its underlying portfolio) for 2025. In purple we see its total return based on market price (or what investors are paying for the fund itself on the open market).

A Contrarian-Friendly Setup: NAV Climbs, Price Sags

As you can see, the total NAV return has continued its climb. The market-price return, meantime, has dropped, carving out that 7.1% “discount gap.”

This is the kind of sign we contrarians love because it shows that this discount is not because management blew a stock selection (or many). It’s all about investor sentiment. And we’re happy to take the other side of the bet when investors turn bearish on a solid fund like this one.

Why the sour mood? UTF’s management firm, Cohen & Steers, is doing something CEF managers rarely do: conducting a “transferable rights offering” on the fund.

Under this setup, if you held shares of UTF as of the “record date”—September 22—you get one “right” to buy new shares at a discount: Every five rights lets you buy one new UTF share.

Here’s how that will work:  When the offer expires on October 16, the price of the new shares will be set at 95% of the stock’s average closing price on that date and the four trading days leading up to it. If the fund’s average price is below 90% of its NAV—again, the per-share value of its underlying portfolio—the price will be set at 90% of NAV.

That “floor” helps limit the offer’s downside pressure on the shares.

If you owned UTF as of September 22, you’ll be able to exercise your rights and even more, if there are leftover shares other investors don’t pick up. If you don’t want to get in on the action here, that’s fine—you can sell your rights—hence the “transferable” in the name. All of the details of the rights offering are on C&S’s website.

All of this, in a nutshell, is why UTF has dropped to a discount.. But how do I know this is a buying opportunity?

Let’s look at history. I did say earlier that rights offerings were rare for CEFs, but on March 19, Nuveen announced a similar deal on its Nuveen Credit Strategies Income Fund (JQC).

JQC’s Rights Offering Sets the Bar for UTF

JQS’s discount deepened on the offer’s announcement, then ground back toward its norm when the expiry date rolled around. I expect the same with UTF’s AI tailwind, capped interest rates and management’s ability to sniff out winning infrastructure plays. And thanks to the rights offering, they’ll have even more cash to work with.

If you own UTF, this is your chance to buy more at a bargain. If not, you still get to buy a rarely cheap fund for 93 cents on the dollar—and ride its closing “discount gap” higher.

Start With UTF’s Rare Discount, Then Buy These Cheap 9% Monthly Payers

Special situations like this put us “over the top” when it comes to retirement, putting a pop in our portfolios (and income streams) that regular investors can only dream of.

That’s right: Most people never see these opportunities. Stuck in mainstream stocks, they settle for meger payouts and sky-high valuations.

Why performance matters for valuation.

Story by Max King

Why do two ostensibly similar real estate investment trusts (Reits) trade at such different valuations? AEW UK Reit (LSE: AEWU), with net assets of £174 million, invests in “UK commercial property assets in strong locations” nearly all outside London. Its shares trade on a 4% discount to net asset value (NAV) and yields nearly 8%.

Conversely, Regional Reit (LSE: RGL), with net assets of £362 million, invests in “high quality commercial properties outside of the M25 motorway”. Its shares yield 7.3% but trade on a discount of 44% – even though, as the larger trust, its shares ought to be more liquid.

Part of the answer is down to performance. AEW seeks to buy “mispriced assets” and to apply “active management” to “grow income, lengthen and improve tenant leases, add value using the planning system and refurbish, where needed”. A five-year investment return of 70%, compared with a property sector index of -5%, shows it has succeeded. Meanwhile, RGL’s NAV is down 74% over five years and 70% over three years.

RGL has been less prudent. It has net debt of £260 million, equal to 42% of portfolio value. A disposal programme of 40 properties with a book value of £106 million – partly offset by capital expenditure of £24 million – would cut that to 29%. However, this follows a distressed share issue at 10p in mid-2024, which raised £110 million but heavily diluted the NAV.

The proceeds enabled RGL to repay a £50 million bond, which was about to mature – debt having reached 57% of portfolio value. Following this, there was a one-for-ten share consolidation. The issue was underwritten by Steve Morgan, the founder of housebuilder Redrow. This has left Morgan’s companies with 22% of the shares in issue.

Which Reit to choose?

There is less rental upside in AEW’s portfolio – just 9% – but management expects recent acquisitions and planned asset management initiatives “to result in stronger returns in the future.” With 34 properties and 129 tenants, it is more focused than RGL, even taking into account its smaller size, and the portfolio is more diversified.

The current market is “the greatest buying opportunity we have seen in the ten-year life cycle of the company but, perhaps, a less good time to be selling”, says Laura Elkin, AEW’s lead manager. “There is more mispricing in the market, which is absolutely what we want to see, enabling us to buy properties out of line with their long-term fundamentals and then actively manage them.”

For investors, the choice is between a Reit with a great record and good prospects at a price that reflects those factors, and one which is very much a recovery bet with plenty of upside but higher risk.

As its the final quarter it’s possible to arrive at an income figure for the end of the year.

Dividends earned £11,493.00. Some of the payments may slip into 2026 and also includes a special dividend from VPC.

Next years fcast £9,817 and the target 10k.

Results analysis: Octopus Renewables Infrastructure

ORIT’s five-year plan for higher returns.

Alan Ray

Disclaimer

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by Octopus Renewables Infrastructure (ORIT). 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.

• Octopus Renewables Infrastructure’s (ORIT) half year results to 30/06/2025 show a NAV total return of -0.2% (H1 2024: +2.0%). The lower NAV per share, 99.5p (31/12/2024: 102.6p) mainly resulted from lower power price forecasts, higher discount rates and dividend payments, partially offset by macro factors (e.g. higher UK RPI inflation, lower corporation tax in Finland).
• ORIT’s dividend yield is c. 9.6% (as at 21/09/2025). In the first half dividends totalling 3.08p were on track to achieve the full year target of 6.17p. The target dividend represents a 2.5% increase on 2024’s 6.02p and, in attaining, would extend ORIT’s record of increasing dividends in line with UK CPI inflation to four years . First half dividend cover was 1.19x operating cashflow.
• Revenue of £68.7m and EBITDA of £44.3m were broadly flat year-on-year, although note that in the FY to 31/12/2024 revenues and EBITDA increased by 12% and 16% respectively. 85% of revenues are fixed over the next two years and 47% are linked to inflation for the next ten years.
• ORIT generated 654 GWh of clean electricity (H1 2024: 658 GWh). In a year when wind speeds were lower, ORIT’s diversified strategy demonstrated its value, with an offsetting 34% increase in solar output. This output is equivalent to powering an estimated 158k homes with clean energy (H1 2024: 147K).
• ORIT was geared 47% LTV at the end of the period (89% as a percentage of NAV), a slight increase from 45% at 31/12/2024. The increase was a result of both slightly lower valuations and the impact of share buybacks, both reducing net assets. The board has restated the target to reduce gearing to 40% or less by the end of the financial year.
• A new five-year term loan facility allowed for the repayment of £98.5m of short-term borrowings through the Revolving Credit Facility (“RCF”). The remaining £150m RCF’s term was extended to June 2028. The average cost of debt decreased to 3.6%, from 4.0% as at 31/12/2024. Resulting savings are expected to be c. £850,000 (or 0.15 pence per share).
• Under ORIT’s capital allocation policy, a total of £21.6m (to 15/09/2025) of the £30m targeted share buybacks have been executed. The asset disposal process is on track to deliver £80m of sale proceeds by year end. Selective investments continued, with a total of c. £4.3m of follow-on funding for two of ORIT’s developers and a conditional forward purchase agreement for a price of c. €27m to acquire a sixth site at ORIT’s existing Irish solar complex, Ballymacarney, with completion expected in H2 2026.
• The portfolio’s weighted average discount rate (WADR) increased to 7.9% (31/12/2024: 7.4%), largely due to market conditions, and informed by observed transactions in renewables assets. The introduction of project level debt for UK assets (which replaced some of the more expensive RCF) also contributed to the increase.
• Post period end, ORIT’s board agreed a change in management fees with the manager. Effective 01/11/2025, management fees will be charged on an equal weighting of net assets and average market cap, which at prevailing levels equates to an annualised cost saving of c. £0.7m.
• The board separately announced its ‘ORIT 2030’ strategy, which sets out its four priorities for the next five years.
  • Grow: Invest for NAV growth, deploying capital into higher growth investments, including an increased ~20% target allocation to construction assets, maintaining the current 5% allocation to developers. There will also be a greater focus on asset improvement and disciplined capital recycling.
  • Scale: Target £1 billion net asset value by 2030, to create a more liquid and investable company. Alongside investment growth, this could include corporate M&A.
  • Return: Target medium-to-long-term total returns of 9-11% through a combination of capital growth and income, maintaining the progressive dividend policy, while preserving full cover and targeting long-term gearing below 40%. Retain diversification across core technologies and geographies.
  • Impact: Aim to build approximately 100 MW of new renewable capacity per annum.
• As part of the ORIT 2030 strategy, the board is also recommending that the continuation vote moves to a cycle of every three years, from the current five. The change will be put to a vote at the 2026 AGM, with the next continuation vote then held at the 2028 AGM.
• Phil Austin, chair, said: “ORIT 2030 marks the next phase in the Company’s development. This clear five-year strategy aims to scale ORIT significantly, drive NAV growth through investment into construction and development assets and – underpinned by resilient cash flows – maintain progressive fully-covered dividends.
• “More than 90% of shareholders backed the Company at its continuation vote in June, indicating strong support for ORIT’s future, yet it has also been made clear from our active dialogue with investors that they want the Company to become larger, more investable and to stay true to its purpose. ORIT 2030 addresses this directly with a plan that balances yield, growth and impact, ensuring the Company delivers for shareholders, while supporting the energy transition.
• “With disciplined capital management and the expertise of our Investment Manager, we believe we are well placed to execute ORIT 2030 and to pursue our ambition of building a £1 billion renewables vehicle by 2030.”

Kepler View

As we’ll see further below, Octopus Renewables Infrastructure’s (ORIT) current yield spread over UK 10-year gilts is at a lifetime high, making this a good moment for investors to examine its investment proposition more closely. And while the ‘ORIT 2030’ strategy is clearly meant as the centrepiece of the results, with a separate simultaneous announcement, it’s worth reflecting on some key points of the results themselves. The first of these is the practical demonstration of ORIT’s diversification strategy. In the geography that ORIT covers, wind speeds this year are already known to have been lower, so it is no surprise that ORIT has reported lower output from its wind assets. But wind speed tends to have an inverse correlation to solar output and ORIT’s solar output, up 34%, confirms this, offsetting the lower output from wind. This is a good demonstration of why power grids need different sources of energy generation, and why a trust such as ORIT, targeting a progressive dividend, is assisted by diversification. It’s also notable that ORIT’s short-term debt has partly been replaced with a term loan secured against UK assets, reducing the overall interest cost from 4.0% to 3.5%. If the goal to realise £80m of assets by the year end is achieved, then we can expect a further reduction in the remaining £150m of RCF, which would reduce the overall debt cost further. The revised management fee will also be an incremental cost saving.

The two most immediately practical elements to the strategy in the ‘ORIT 2030’ roadmap are the defined target allocation of owning c.20% in construction assets, and the accompanying increase in the trust’s return targets. It’s worth noting that these do not reflect a change to the investment policy itself. ORIT’s manager has a long track record of asset construction dating back to 2011 and has over 150 professionals with experience at all stages of managing renewable energy infrastructure assets, so this change plays to the inherent capabilities of Octopus Energy Generation. Within ORIT the case study that best illustrates this is the 2024 sale of its fully operational Swedish wind assets for c. €74m, having acquired the assets pre-construction in 2020, with a resulting IRR of 11%.

The focus on reducing costs, noted above, will be important in achieving one of the other goals, to maintain the progressive dividend. Clearly, as ORIT slowly increases to ~20% exposure to non-income producing assets in future, this will mean the balance has to work that much harder. The management team notes that dividend cover will be an important consideration in the decision process to recycling assets, which in simple terms means that lower yielding assets are more likely to be sold and proceeds recycled into construction. The company also reiterated its commitment to a progressive dividend, noting that while increases may not always track CPI in future, this has been achieved in practice, despite never being a formal policy. Further, the revised fee structure, partly calculated on market cap, means the manager’s fee is reduced when there is a discount, aligning the manager’s interests more closely with shareholders. One of ORIT’s other ambitions is to act as a consolidator in its peer group and it seems very likely that earnings enhancement will be a key consideration in the pricing of any M&A transactions that result from this ambition.

Coming back to the present, the chart below shows ORIT’s dividend yield as a spread over 10-year gilts. UK government bond yields have not been playing nice with interest rates this year and are approaching 5%, which accounts for a good deal of the recent price weakness for ORIT, its peers and indeed many other rate-sensitive ‘alternatives’. But as the chart below shows, the spread over gilts is close to a lifetime high for ORIT. With a set of proposals that reduces costs, puts more alignment between the manager and shareholders in terms of addressing the discount and which plays to the manager’s strengths as an experienced constructor and operator, as well as increasing the frequency of continuation votes, we think ORIT’s discount of over 30% seems excessively pessimistic.

YIELD SPREAD OVER GILTS

Analyst’s View

ORIT has no direct exposure to the US, where a significant policy shift away from renewables is underway, and is invested across a range of countries that maintain a very constructive approach to renewables. Indirectly, the team reports that equipment supply chains are not affected by tariffs, as generally, the US does not export equipment involved in renewables. Conversely, supply chain pressures could ease if the US imports less. Consequently, the team see the US’s position as, at worst, neutral for ORIT.

In the Dividend section, we show how ORIT’s average asset life has increased from 28 to almost 30 years over the last four years through active management, which is crucial for maintaining and increasing dividend cover over the long term. This gives us further reassurance that the progressive dividend policy can be maintained in the future.

The US is, however, weighing heavily on wider investor sentiment, not least because it clouds the picture for interest rates and inflation, and the knock-on effect for ORIT and its peer group is a continuation of the wide discount. In response, ORIT’s capital allocation policy includes an expanded £30m share buyback programme and a reduction in total debt, funded by asset disposals at or above NAV. These have demonstrated the team’s ability to move a project from pre-construction, through to operation, to generate returns above the trust’s targets. If the very wide discount continues to narrow, investors could achieve returns considerably higher than this.

Bull

• Diversification provides quantifiable benefits to power output
• An 8% yield backed by a covered dividend growing in line with inflation
• Robust capital allocation policy enacted to address the discount

Bear

• Investor sentiment toward listed renewables is weak
• Capital allocation policy reduces ORIT’s ability to acquire new operational assets
• Gearing can amplify losses as well as gains

UIL leaves the watch list as the yield is now below 6%

These 50%+ “AI Dividends” Could Ruin Your Retirement

by Michael Foster, Investment Strategist

What if you could squeeze, say, a 70% dividend yield from a fast-growing AI stock like NVIDIA (NVDA) or Palantir (PLTR)?

Sounds great, right?

Instead of relying just on these stocks’ prices for your profits (since dividends are, frankly, the furthest thing from their CFOs’ minds), you get their returns as high-yielding dividends.

That’s something a new breed of ETFs is promising. These funds, which are gaining in popularity, hold just one stock – usually a Palantir, Tesla (TSLA) or NVIDIA – and trade options on that one stock to deliver stated yields often way above 50%.

Does it work?

First, let me say that, as someone who has covered 8%+ yielding closed-end funds (CEFs) for over a decade, I get the sentiment behind these funds. Big income streams can create financial independence – who wouldn’t want as big of a yield as possible?

But there’s a line where a dividend goes from appealing to dangerous – and it’s well below the stated 70% distribution rate, as of this writing, on a single-stock ETF like, say, the YieldMax AI Option Income Strategy ETF (AIYY).

That’s because, what these funds’ massive yields give, their share prices can easily take away.

Consider the YieldMax AI Option Income Strategy ETF (AIYY), which aims to deliver that 70% income stream by holding C3.ai (AI), a developer of AI apps for business. As I write this, AIYY investors have seen a total return of nearly negative 50% since the start of the year.

70% Dividend Doesn’t Help AIYY Investors

With nearly half of their capital now lost in 2025 (with dividends included), those holding AIYY must be wondering what went wrong.

Let’s start with that dividend, because there’s a key thing to note here: Even though AIYY’s website says its distribution rate is 71%, it also tells us that the fund’s 30-day SEC yield is only 4.8%. This means the fund’s net investment income (which can only be calculated by a strict SEC-mandated formula and excludes options income, which can be unpredictable) is much lower than that 70% – which is the payout as a percentage of the fund’s assets.

Moreover, AIYY’s distributions keep falling, down 63% in 2025.

Huge Yield, But Shrinking Payouts

Let me clear – not all of YieldMax’s 57 ETFs are losing money this year. In fact, most are up. The best return goes to the YieldMax PLTR Option Income Strategy ETF (PLTY), with a stated 49.4% yield. This fund has returned 77.9% for 2025 and is up much more since its inception in late 2024.

PLTY Explodes Out of the Gate

So, have we found the secret to financial independence here? After all, with this 49.4% income stream, it takes only about $203,000 in upfront investment to get a six-figure income stream!

Except, well, there’s a lot of risk behind this seemingly impressive chart.

As you probably guessed from the fund name, this ETF tracks Palantir, whose stock has surged as the company wins more government contracts. If you predicted PLTR’s surge, congratulations – that’s impressive. But an investor who knew to invest in PLTR should’ve just bought that stock instead, since PLTY (in purple below) has badly lagged it.

Palantir Tramples the Single-Stock ETF That Tracks It

This problem is endemic to single-stock ETFs: These funds try to “translate” growth stocks’ gains into big dividends, but in so doing expose us to the risks of a single stock, with less upside.

Sure, the income is great when the stock is rising, but that income will shrink if the stock drops. That’s what happened to the 56.2%-yielding YieldMax MRNA Option Income Strategy ETF (MRNY), which holds Moderna (MRNA) and is down 39% in 2025 and down even more since its IPO in early 2024.

MRNY’s 40%+ Dividend Yield Can’t Save Its Stock

Anyone who bought MRNY and enjoyed the huge yields at the start of 2024 probably thought they were really on to something, as the fund’s total return rose into the spring. They then saw their fortunes reverse as the fund’s price fell.

That’s the fate I expect for the aforementioned PLTY if the stock it tracks – again, Palantir – drops. And I see that as likely, since Palantir’s forward price-to-earnings (P/E) ratio is at a stratospheric 278 as I write this.

So what are these funds for, then? To be honest, I’m not sure. As we’ve seen, investors are almost always better off just buying the underlying stocks.

What’s more, some of these ETF issuers are venturing into even riskier territory, like the recently released ” Bonk Income Blast ETF,” which doesn’t just invest in crypto, but also in “other crypto ETFs, including non-US crypto-ETFs,” according to its SEC filing.

This means investors will wind up paying the fees for this ETF, as well as fees for the ETFs it owns. Plus they’re exposing themselves to the risks of the crypto market and the risks of foreign markets – including potentially lax regulation – too.

There’s just no reason to take risks like those when you can get predictable, diversified dividends from CEFs. Sure, CEFs don’t offer the mind-blowing yields of YieldMax and its ilk. But we’ll happily take that “lower” payout – bearing in mind many CEFs yield more than 8%, if it lets us sleep peacefully at night. Moreover, we benefit from CEFs discounts to net asset value (NAV, or the value of their underlying portfolios), which hold the potential for future upside. ETFs – single stock or no – never offer us a discount.

I think you’ll agree that this is a far better deal than a 70%-yielder that’s dropped around 50% in less than a year.

Bargain Alert: These 8.2% Payers Get You BIG Dividends From AI (the Right Way)

I hate to see investors take massive risks like these when there’s a much safer way to get a high payout from the AI megatrend.

Like our approach. Right now, we’re buying 4 bargain-priced CEFs paying 8.2% on average. These stealth income plays hold smartly built, diverse portfolios of AI stocks – they’re head-and-shoulders above treacherous “one-stock” plays like PLTY.

Critically, these 4 funds hold shares of both AI developers and companies putting this breakthrough tech to work in their everyday businesses. That’s critical because it gives us a piece of the action as AI slashes these companies’ costs, boosts their sales and helps them get more out of each and every employee.

And because they’re overlooked bargains, these 8.2%-paying funds let us buy their portfolios for less than we could if we bought each of their holdings individually.

These were the most-bought active and passive funds on Interactive Investor during September:

Header Cell – Column 0	Active Open-Ended Fund	Index Fund or ETF
1	Royal London Short Term Money Market Fund | Acc	iShares Physical Gold
2	Artemis Global Income | Acc	Vanguard LifeStrategy 80% Equity
3	Ranmore Global Equity Institutional	L&G Global Technology Index Trust
4	Jupiter Gold & Silver	Vanguard S&P 500 UCITS ETF | Acc
5	Royal London Short Term Money Market Fund | Dis	Vanguard S&P 500 UCITS ETF | Dis
6	Orbis OEIC Global Balanced	HSBC FTSE All World Index
7	Artemis Global Income | Dis	Vanguard Global All Cap Index
8	Artemis SmartGARP European Equity	iShares Physical Silver
9	Ninety One Global Gold	Vanguard LifeStrategy 100% Equity
10	Vanguard Sterling Short-Term Money Market	Vanguard LifeStrategy 60% Equity

^{Source: Interactive Investor.}

The gold rush is especially noticeable in the top funds and ETFs list, with iShares Physical Gold ETC (LON:SGLN) jumping from third to first place in the list of top passive funds and Jupiter Gold and Silver Fund jumping from sixth to fourth.

“In September, a key trend was increased demand for precious metals,” said Caldwell. “There were two new entries: Ninety One Global Gold and iShares Physical Silver (LON:SSLN).”

September’s top investment trusts for DIY investors

These were the most-bought investment trusts among DIY investors on Interactive Investor during September:

Header Cell – Column	Investment Trust
1	Scottish Mortgage
2	Greencoat UK Wind
3	City of London
4	Polar Capital Technology
5	Temple Bar
6	Fidelity China Special Situations
7	JPMorgan Global Growth & Income
8	F&C Investment Trust
9	International Public Partnership
10	Murray International

^{Source: Interactive Investor.}

Technology investment trusts like Polar Capital Technology and Scottish Mortgage (LON:SMT) remain popular choices, but there are signs that DIY investors are looking less exclusively at growth-oriented investment trusts.

“Another trend gaining greater prominence is investors turning to funds that have a value style,” said Caldwell. Murray International (LON:MYI) is a new entrant to the table that reflects this value focus.

“This suggests that some investors are seeking greater diversification in their portfolios, perhaps mindful of the concentration risk attached to the US stock market,” said Caldwell.

The Analys

The best stocks in Britain’s diverse energy sector

Former City analyst Robin Hardy assesses the opportunities among energy delivery companies

Published on October 1, 2025

by Robin Hardy

The UK-listed energy is a large and diverse collection of both pure businesses and collective investment funds focusing on one or more points on the energy delivery spectrum. It encompasses a wide set of aspects of the energy market from upstream to downstream, from clean to dirty, from new technology to old, and from generation to supply. There are businesses offering potentially rapid growth through to plodding, near utilities and also some of the UK market’s larger dividend yielders. That means investors in this sector are capable of generating a diverse range of earnings streams that should suit pretty much any approach or ESG standpoint. While the sector is large by market cap terms, that value is heavily skewed to a handful of some of the UK’s largest stocks. 

We start with a ‘view from 10,000 feet’ of how this diverse sector fits together. 

The oil & gas sector

This remains, by some margin, the largest part of the energy sector due to FTSE giants Shell (SHEL) and BP (BP) (combined market cap >£200bn). Understandably this remains a problematic area for many investors due to its negative environmental credentials, although this is likely to be where the greatest investment in green energy will be found. These businesses are looking to salve their reputation and avoid future punitive taxation and they have immense free cash flow to slowly move their business models away from fossil fuels. We have written in this column before that perhaps the best route to clean energy is to buy dirty.

Shell’s appears the stronger and more consistent approach to building a more balanced future energy profile, while BP has back-peddled: this is reflected in a different share price performance with Shell delivering the greater gains over the past five years. 

While investors may wish to focus on green energy, there is no escape from the fact that the outlook for oil demand remains strong. Even by 2050 global demand for oil is forecast to be close to 20 per cent higher than it is today: 123mn barrels per day versus 2024’s 104mn. In a less stable geopolitical climate oil prices are likely to remain volatile but relatively high, allowing for very healthy profits to still to be generated from fossil fuels. These earnings may be fairly lowly rated but they are extensive and growing. 

In the oil and related space, in addition to these large integrated businesses (upstream and downstream) we also have pure upstream businesses such as Tullow (TLW) and Harbour (HBR) through to Aim-listed exploration-only businesses such as Rockhopper (RKH), although a good number of smaller Aim-listed players have more recently de-listed from this UK’s junior index. These smaller stocks are typically riskier and more volatile in nature and most have not generated good returns for investors. 

The clean energy sector

Clean or renewable energy comes in four core variants: wind, solar, biomass and fuel cell technology. We are not counting nuclear energy here although this is technically a renewable source.

Fuel cell technology

Fuel cell technology is a clean rather than renewable energy source as it consumes and converts an input material. It is the process of turning either methane (natural gas) or hydrogen into electricity by means of hydrolysis. As this is a fully reversible process, it can also be used to store power by turning electricity into hydrogen, potentially very useful in systems such as wind where some kind of network storage/battery is ideally used to capture excess power generation. 

The problem with fuel cells is their relatively low output, often making only enough power for a single building, factory or large vehicle: this is not really a technology for network generation. The largest potential installations might run to 100MW, enough to run a single large factory at peak load. However, as power generation is moving increasingly to the micro or local scale, there is a clear space in the market for this technology.

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Another potential issue for fuel cells is that the production of the cleanest fuel cell fuel, hydrogen (the only byproduct is water), is not typically a clean process. Most hydrogen (around 96 per cent) is made using steam methane reforming which can release significant amounts of carbon dioxide. But green hydrogen production (using renewable energy and electrolysis) is rising steeply. 

The problem for investors with this sector is that the listed players are small: ITM Power (ITM) generates less than £50mn revenues and Ceres Power (CWR) nearer £30mn with neither yet generating positive EPS. That said, running from such a low revenue base does allow for sharp share price movements whenever a sizeable supply contract is signed, but also equally negative reactions come when delays occur, which appear common. Making money in this space is challenging. 

Renewables

Renewables is a reasonably hard sector for investing in single stocks, but there are 18 renewable energy investment trusts trading on the LSE.

Wind

There is limited scope for direct investment here with the only pure play being investment trust Greencoat UK Wind (UKW). This sector attracts the particular ire of US President Donald Trump and given the recent UN speech and the economic levers Maga likes to pull to impact policy globally, this sector may face a tough near-term future. There are also concerns about long-term operational costs and the unpredictability of generating levels. Wind (mainly offshore) in the past 12 months contributed around 30 per cent of the UK’s electricity. But investors’ options are limited, with the perhaps best routes being tangential through overseas operators, funds or the likes of turbine manufacturers. 

Solar

Again, single company investments are limited here but funds/trust abound. The largest options here are The Renewables Infrastructure Group (TRIG) which is also involved in wind, SDCL Efficiency Income (SEIT), Foresight Solar Fund (FSFL) or Bluefield Solar Income (BSIF). Share price performance in recent years has not been great but yields in all four cases are close to double digits and are generally high across this subsector. This, however, reflects some higher levels of risk, as do the material discounts to asset values.

Biomass

Biomass involves the burning of, primarily, waste or byproducts in the form of methane from food waste or – the largest and perhaps most controversial source – timber. The main player here is Drax (DRX). Drax is a single, converted coal-burning power station that now burns wood pellets made in a fully vertically integrated, wholly owned supply chain based mainly in North America. There has long been controversy about the burning of wood as a green/clean energy source (it releases captured carbon and produces particulate matter) plus specific issues about the wood Drax burns. Here the group has been accused of “greenwashing” (it claims to burn only waste wood, forest clearings and ultra-low quality trees) but there have been suggestions that it also burns higher quality wood. 

Hydro

Globally, hydro is a key generating source (15 per cent) but is tiny (at below 2 per cent) in the UK with only a couple of facilities within SSE’s portfolio. Here it is largely for power storage or emergency infill rather than core generation and this is unlikely to change.

New generation energy

This is something of an adjunct from the clean sector and largely points to the small modular reactor (SMR) sector. Nuclear can still be an issue for some investors but this exciting new generation sector gives a relatively rare opportunity to invest in nuclear generation. Nuclear is more typically a state-funded sector with power stations costing perhaps £50bn but SMRs (according to Rolls Royce (RR), the only substantial UK player) will start at £1.8bn and likely reduce as volumes rise. This subsector should play a major role in the decentralisation of power generation. While capital costs are higher than wind generation, long-term use costs are likely to be materially lower with much longer lifespans. 

Generation, supply and distribution

This is the more stable, utility-style end of the energy space where low competition, even monopoly positions allow for more defensive investments but more typically without the scope for substantially market beating returns. This was also historically where one would have come for high yields and metronomic dividend performance. The turbulence in large-scale energy markets in the last five years has allowed much stronger share price performance but this is largely anomalous and for many this is still a subsector best targeted for long-term income returns. 

However, the changes in the energy profile of the UK have led the players in this space to swing their free cash flow profile away from their historic position of having almost literally nothing else to do with their surpluses other than reward shareholders. Now large capital investment programmes such as National Grid’s (NG) £60bn+ grid renewal and localisation are changing capital allocations and in the process are likely to change these stocks from an income bias to something more akin to growth/income. This should raise likely total shareholder returns from mid-single digit percentages to high single, perhaps even low double digit. 

Supply 

There is relatively little for investors to play here with the bulk of the big six suppliers (British Gas, Octopus Energy, E.ON Next, OVO Energy, EDF Energy, and ScottishPower) either privately owned or part of international businesses. The only UK-listed access is for British Gas which is around half of Centrica (CNA), so this sector is essentially a closed avenue today for direct investment. 

Generation 

The only substantial generator listed in the UK is SSE (SSE) which is increasingly focused on green energy, while retaining capacity in gas powered facilities: its gas capabilities remain larger than its wind capacity but by 2027, this should have reversed. It is also a grid operator/distributor in Scotland. Drax is a single location generator, while nuclear power in the UK is controlled by France’s EDF (unlisted) with the balance of gas powered output not run by SSE being in the hands of Germany’s RWE (DE:RWE). 

Distribution

The UK gas network is owned by a consortium of private equity investors, while the electricity network remains largely within listed businesses. National Grid (NG) operates the whole of England and Wales with SSE running part of the Scottish system alongside Spain’s Iberdrola (ES:IBE). NG has been described as “reassuringly dull” as the UK grid has to operate, and customers have to pay for it. With the UK power system increasingly decentralising, that could be under threat, but NG is seizing the opportunity to play a major role in the switch to local generation and distribution. The market seems to believe that it might just work. Perhaps less rosy is that operations in the US now deliver two-thirds of the group’s earnings and policy in that market is looking to favour fossil fuels over green generation.

SSE too has sought to change its spots and has more than once cut what was once seen the UK’s safest dividend to instead fund growth, mainly in renewables. While it may not massively increase its total power generation in this process or be able to charge customers more, the market values wind electricity much more highly than gas electricity so investors should win. 

A potential fly in the ointment for these former utilities is their capital structure, especially in NG’s case, using higher debt levels within their capital base (akin to the issues in the water sector). Heavy spending on transition will probably see debt rising further. The days of cheap money are over and this capital structure risks being a drag on growth.

Aberdeen Asian Income Fund Limited (the “Company”)

15 July 2025

Declaration of Second Interim Dividend

Highlights

·    Annualised dividend yield of 6.8%.

·    Second quarterly interim dividend of 3.84p per share.

The Board has declared a second quarterly interim dividend of 3.84p per share for the year ended 31 December 2025, which will be paid on 22 August 2025 to shareholders on the register at the close of business on 25 July 2025. The ex-dividend date is 24 July 2025.

Based on a share price of 223p on 30 June 2025, and taking into account the first interim dividend already paid, this equates to an annualised dividend yield of 6.8%.

This is the second dividend payment announced by the Company following the introduction of the enhanced dividend policy earlier this year, to broaden the appeal of the Company’s shares to a wider range of investors and to reflect the sustained investor appetite for yield in the current interest rate environment.

The Company offers the option for shareholders to invest their dividend in a Dividend Reinvestment Plan (“DRIP”), which is managed by the Company’s Registrar, Computershare Investor Services PLC. The deadline for elections under the DRIP is 1 August 2025.

Note:

The Company’s dividend policy, as announced on 16 January 2025, is to set the dividend at 1.5625% per quarter of the Company’s net asset value (“NAV”), equating to approximately 6.25% of NAV per annum. The dividend is calculated using the Company’s NAV on the last business day of the preceding financial quarter (i.e. the end of March, June, September and December). The second quarterly interim dividend of 3.84p per share is based on 1.5625% of the Company’s NAV of 246.02p per share as at 30 June 2025

Chairman’s Statement

Building on our strengths: enhanced team, attractive yield and strong results driving shareholder value

This has been an exciting period for our Company. We strengthened our investment team with the appointment of an additional highly experienced lead portfolio manager, bringing fresh insight to complement our existing expertise. Our enhanced dividend policy – delivering one of the most compelling yields in the sector – is already attracting more income seeking investors. Together with a robust share price performance, these developments further reinforce our long term track record and investment appeal.  

Investment Management Team

During the period, we were pleased to welcome Isaac Thong as our lead manager, working alongside Eric Chan. Isaac has joined Aberdeen’s Asia Pacific Equities team as Senior Investment Director, based in Singapore, and is responsible for the day-to-day portfolio management of the Company. He also leads the Asian Income portfolio construction group within Aberdeen which includes responsibility for the Company’s portfolio.

With over 15 years’ experience investing in Asian equities, Isaac brings a wealth of knowledge and expertise that will enable the investment team to continue finding companies that will deliver sustainable growth, consistent income and attractive returns for our shareholders.

Performance

It is pleasing to report a share price total return of 6.3% for the six months to 30 June 2025 and a narrowing of the discount of the share price to the net asset value (“NAV”) per share from 12.5% to 9.3%. 

The NAV total return for the period was 2.2%, compared to a total return of 4.5% from the MSCI AC Asia Pacific ex Japan Index (the “Index”).  

The NAV underperformance for the period under review was due primarily to the portfolio’s underweight exposure to Chinese internet stocks. Historically, the Company has had little or no China internet exposure because these companies did not pay a dividend, which worked well previously but has had an impact on performance this year.

Encouragingly, the Company continues to outperform the Index over three and five years in both NAV and share price total return terms. These long-term absolute and positive returns for investors have been achieved without compromising on quality, reflecting the Investment Manager’s disciplined investment approach. The Investment Manager has recently implemented a refined strategy of balancing income and growth across key Asian markets. This has resulted in a rise in the portfolio’s weighted average return on equity, profit margins and yield.

13/08/2025