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Every time I see a double-digit dividend yield, I raise my eyebrows. This is because it is well above the index average, or even the UK base interest rate. As a result, it will probably be a high-risk investment, but the potential income could make it worth it. Here's a stock with a higher than 13% dividend forecast that I've spotted.
Key details
The company in question is NextSolar Energy Fund (LSE:NESF). It is a publicly traded investment firm specializing in solar energy and energy storage. FTSE 250. It currently has 102 different operating assets, which have a combined value of over £1bn.
Typically, the fund pays quarterly dividends. You typically pay the same amount each quarter for a year and then, based on annual results, increase it. One key thing is that the dividend cover (the amount by which any dividend declared can be covered by the latest earnings) is above 1. The latest forecast for the current financial year is a cover range of 1.1 to 1.3 times, so I have no concerns here, although that's not a huge margin of safety.
Last year, the sum of the four dividends was 8.39 pence. Based on a share price of 68.8p, this gives a return of 12.19%. Part of what makes this so high is the growing dividend per share. However, the share price has also fallen 20% over the past year. This also acts to increase performance.
Forecasts for the coming years
Looking ahead, the market expects the quarterly payment to rise at the end of next year to 2.2p. This should continue at that level for 2026, with the first payment of 2027 moving to 2.28p. So for calendar year 2027, the total could be 9.12 pence (2.28 x 4). If we assume the same share price as today, this would increase the yield to 13.26%.
There are a couple of points I need to make here. Firstly, although the company has a history of paying and increasing dividends, there is no guarantee this will continue. Second, the stock price assumption might not be true. That far in advance, the stock price could be substantially higher or lower than today. This could mean that performance is even higher or lower.
Risk, but also reward
I think the main risk comes not from earnings but from share price depreciation. You should track the net asset value (NAV) of all solar assets. However, the share price is currently trading at a 29% discount to NAV.
In the long term, this should increase to ensure that the two prices are similar. The usual reason for the difference is negative investor sentiment around a company. I know renewable energy stocks have fallen out of favor recently, but I expect this trend to change next year.
On that basis, I think investors should consider adding this stock to their portfolio if they are looking for a high-yield opportunity. It's not a low-risk idea, but it certainly offers attractive income potential.
