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We may have only inched toward 2025, but looking ahead to 2026 and 2027 gives investors a chance to weigh dividend forecasts for potential stocks worth buying.
It looks like a high-performing company could rise even further in the coming years. Here are the details for your consideration.
Renewable energy profits
The company in focus is the Solar Provident Fund (LSE:FSFL), member of the FTSE 250. Its management team focuses 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 parks, primarily through power purchase agreements (PPAs) with suppliers.
Over the past year, the share price is down 30% and the dividend yield was 11.2%. The current performance makes it one of the highest-income options in the entire index.
It typically pays a dividend every quarter and increases the amount per share once a year. For example, in 2022 it was 1.74p, in 2023 it increased to 1.78p and for the last few quarters it has been 2.0p.
This trajectory is attractive to income investors as there is a track record of increasing payments, which in turn helps increase the dividend yield (assuming there are no wild share price movements). Dividend coverage is currently around 1.0. This means that profits completely cover the dividend payment. This is a good sign.
Thinking about the future
According to analyst expectations, the next dividend declared in June could increase to 2.1 pence per share. In June 2026, it is expected to rise to 2.19 pence, and in June 2027 to 2.27 pence.
So if I assume the share price remains at 70.5p, this could mean the yield for calendar year 2026 would rise to 12.17%. By 2027, this figure could increase to 12.65%.
Of course, I have to be careful when I look ahead to the next two years. The share price is unlikely to remain at the same level. If the stock falls, the return will increase even more. But if the share price rises, then the performance could be lower than my forecasts. So investors should take things with a grain of salt!
Write down concerns
There are risks associated with this action to be aware of. For example, the decline in stock prices over the past year has been attributed to lower energy prices. This reduces the company's earning potential. Additionally, these large-scale solar projects are partly financed with debt. The fact that interest rates have remained high for longer in the UK means that future borrowing will be more expensive than previously anticipated.
Even with these risks, the return is very attractive. If investors are aware of the potential concerns, I think it would be a good income stock to consider for the next few years.
