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A lot FTSE 250 stocks offer attractive dividend yields. With passive income in mind, I’ve been looking at the UK mid-cap index for high yielding stocks to invest in.
A dividend stock that looks attractive is NextEnergy Solar Fund (LSE:NESF), a renewable energy investment firm that owns a portfolio of diversified solar infrastructure assets and complementary technologies, such as energy storage facilities. Currently, the stock is yielding 6.9%.
This is my take on the prospects for this green energy business.
An action for the future
NextEnergy Solar Fund has around £1.2bn under management, comprising 99 solar investments. It is a great choice for an ESG conscious investor like myself due to the company’s sustainable ethos and positive climate impact. The firm’s operational portfolio is largely concentrated in the UK, but it also has a notable presence in the Italian energy market.
Energy security and climate change are two great global challenges. The disruption in commodity markets caused by the war in Ukraine has required significant government intervention to limit energy prices. In that context, homegrown energy sources have never looked more attractive. I think the fund will benefit from this tailwind.
The company’s green credentials are strong. For the year ending September 2022, the company estimates that 266,500 tons of CO₂ emissions were avoided due to its solar operations. In addition, its assets produced enough power to power 354,274 UK homes.
A key risk facing this FTSE 250 action is the possibility of electricity generation falling below expectations. Another challenge is the new UK windfall tax on renewable energy providers, taxed at 45% from 2023 to 2028. If this results in reduced investment in the sector, it could limit growth prospects. of the company
Earn passive income from dividends
NextEnergy Solar Fund share price is up 5% in 12 months. But, in my opinion, the dividend yield is the most compelling reason to invest in this company. After all, the stated goal of the fund is to provide shareholders with “an attractive income, mainly in the form of regular and reliable dividends“.
The latest news on the dividend front is positive. An interim dividend of 1.88 pence per share for the quarter ending 31 December 2022 represents a year-on-year increase compared to 1.79 pence for the same period in 2021.
To illustrate the point, if you had £1,000 to invest, you could earn over £69 in passive income every year from today’s dividend yield. That’s more than I could expect from the vast majority of FTSE 100 and FTSE 250 shares.
Of course, the forward dividend coverage is a little low at 1.3-1.5 for 2023. I wish it was higher. Nonetheless, I think it should be stable enough to rely on the fund as a handy passive income generator, especially if growth exceeds expectations.
Why I would buy this FTSE 250 stock
Shares of NextEnergy Solar Fund will benefit from long-term demand for renewable energy solutions. As a long-term investor, I think this company looks like a good buy and hold opportunity for my portfolio.
With a market-leading dividend and a price-earnings ratio below five, if I had some spare cash, I’d invest in this stock today.
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