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Daily Mail
2 days ago
- Business
- Daily Mail
How to snatch a 10% dividend from cheap renewable energy trusts: INVESTING ANALYST
Renewable infrastructure trusts might have suffered of late, but that means some are offering bumper double-digit dividend yields. Is this an opportunity and could the future still be looking bright over the long term? In this column, William Heathcoat Amory, managing partner at Kepler Partners, says renewable infrastructure trusts could be a bargain if you know where to look. Renewable infrastructure trusts have taken a beating in recent years. The main reason for this is not hard to discern: a whopping circa 5 per cent increase in interest rates since 2022. This means that there are now a lot of interesting investments available to income investors that were not as high yielding previously. Renewable infrastructure trusts use considerable amounts of leverage (mostly fixed rate), and so the prospect of a significant increase in the cost of borrowing when it needs to be refinanced, poses a longer-term challenge for the asset class, and has spooked some investors. Those with short term borrowings are paying higher interest rates, and will be actively trying to sell assets to pay back these borrowings. The subdued sentiment means there are potential bargains to be found. The rise and fall of renewable energy trusts Fundamentally, renewables offer a high income, uncorrelated to equity markets and the economic cycle, with links to inflation. This meant that in the previous low-interest rate environment, they were on every income investor's shopping list. Most trusts traded at significant share price premiums to net asset value (NAV), and trusts issued shares regularly to meet demand. The sector mushroomed in size as a result. Nothing lasts forever though, and the current discounts to NAV are reflective of an inevitable readjustment, so that supply and demand for the shares of these trusts once again match. As the graph below shows, this process has already started with buybacks widespread, albeit relatively slowly. Consolidation is underway, with some trusts' shareholders having elected to realise assets over time and wind up. Others have the scale and quality that means they are likely to survive. Why renewables trusts are trading at a discount In contrast to traditional investment trusts which, when faced with a wide share price discount to NAV, have liquid underlying holdings which can be sold and the proceeds being used to buy shares back or return capital to shareholders, renewables trusts invest in hard assets – wind or solar farms. As one might imagine, these are illiquid. Much like selling a house, sales can be achieved but take time – especially if one wants the best price. This perhaps explains why discounts have persisted so long. Trusts are buying shares back, but perhaps not yet at a rate that has properly addressed the supply and demand imbalance. According to a recent presentation on TRIG, InfraRed Capital Partners (the company's managers) said that, despite the market softening over the past six months, there is still a good level of interest in renewables assets, with private market investors paying prices that reflect current NAVs. For TRIG, since 2022 the team have sold 10 per cent of the portfolio, (or £210million of assets) at prices which reflected a premium to NAV at the time of sale. This suggests that valuations that make up NAVs are fair, although clearly this is an opaque market and much can change. RENEWABLE ENERGY INFRASTRUCTURE TRUSTS Trust Total assets (£m) Discount to NAV % Dividend yield % Aquila European Renewables 513 -23.5 8.0 Bluefield Solar 1,300 -24.4 9.6 Downing Renewables & Infrastructure 300 -28.6 7.2 Foresight Environmental Infrastructure 846 -30.9 10.4 Gore Street Energy Storage 813 -36.4 10.8 Greencoat UK Wind 4,420 -24.0 9.1 NextEnergy Solar 1,079 -30.4 12.9 Octopus Renewables Infrastructure 1,064 -30.7 8.8 Renewables Infrastructure Group (TRIG) 3,122 -29.8 9.2 SDCL Efficiency Income 1,095 -52.0 14.4 VH Global Energy Infrastructure 412 -35.3 8.6 Source: AIC, all data as at 30/05/2025 Big dividends are on offer - are they backed up? The current discounts to NAV mean that for investors today, dividend yields are significantly higher than the yields that private market investors would expect. So what then are the prospects for investors in these trusts? As we highlight above, private market investors appear relatively sanguine on valuations. The discounts to NAV might reflect caution on gearing, which most trusts employ at a meaningful level. By and large, trusts either have fixed structural gearing on an asset specific basis, which is being paid down over time. Or they have trust level gearing, which will either need refinancing at a point in the future or repaid. Whichever way gearing is employed, owning assets that deliver high levels of cashflow, debt levels appear manageable over the short to medium term. Underpinning dividends are the cashflows that arise from inflation-linked subsidies and the proceeds from electricity sales. In some parts of the world, particularly the US, future subsidy regimes appear to be being unpicked. In the UK, we are in one of the foremost locations for wind power, and this – together with what Bill Gates called 'clever government subsidies that encouraged companies to invest' (in his book 'How to avoid a climate disaster') - is the reason why the UK has achieved a significant shift away from fossil fuel energy. According to data from a great open-source National Grid website Iamkate, the UK's electricity supply has gone from 68.7 per cent fossil fuel based in 2012 to only 28.2 per cent in 2024. What's on offer for UK investors? For denizens of the UK, it is often missed that we are at the forefront amongst countries in the energy transition. In particular, the UK is a significant leader in offshore wind, with installed capacity of offshore wind turbines far greater than the US in absolute terms, not just in proportion of the energy mix. In Gates' view, offshore wind power is one of the most promising technologies that needs to be better harnessed around the world to achieve a significant reduction in carbon emissions. As one might expect, within the renewable energy trusts, offshore wind represents a reasonable proportion of exposure. Greencoat UK Wind for example has 45 per cent of its portfolio in offshore wind farms, which offer high investment returns and is one of the reasons the trust has been the best performer in NAV total return terms in the peer group over the last three and five years. In early May this year, Ørsted announced that it had decided to discontinue its Hornsea 4 project in the UK in its current form due to the numbers not adding up in terms of investment return. This would have become one of the biggest offshore wind farms in the world, and so its cancellation or delay represents a blow to government and the UK's ambitions for decarbonisation and energy security. For shareholders in existing renewable assets, it's possible that this is a positive, in that there will be less generating capacity built out, and therefore higher long term electricity prices than would otherwise be the case. For wind farms owned by the likes of TRIG and Greencoat UK Wind, a rough rule of thumb is that around half of wind revenues come from subsidies, and half come from the proceeds of electricity sales. According to Iamkate, wholesale electricity prices have been relatively resilient over the past 12 months, at £82 per MWh, meaning that both trusts have been paying a covered dividend, and still repaying debt or re-investing in share buybacks or new assets. Both have demonstrated resilience in terms of dividend cover through difficult periods like 2020, when electricity prices fell dramatically during the COVID-19 crisis. The main attraction today is the high initial dividend yield, which as the table above suggests, many offer a multiple of the yield of the FTSE 100 (which yields 3.5 per cent at the time of writing). Verdict: An interesting moment for defensive income Renewables trusts offer a level of defensiveness to investors, not least because demand for energy is not likely to subside substantially. The price of energy is hard to predict and can fluctuate, but there are comparatively low levels of volatility in renewable infrastructure's cash flows. Renewable energy infrastructure assets typically have long economic lives, with low operating costs (especially compared to hydrocarbons) and over time generate a fairly predictable amount of energy. This makes forecasting cashflows simpler than it would be compared to many other asset classes. In addition, subsidies for renewables have a direct link to inflation. This means that if inflation remains persistent, renewable energy cashflows should increase. The result is that the income that renewable energy infrastructure assets produce can be resilient, and sometimes offer built-in upside sensitivity to inflation and energy prices. Investor sentiment towards renewables is not strong for perfectly good reasons, mainly because of higher interest rates, but exacerbated by political noises coming from America. But there are two fundamental reasons why the future for renewables in the UK and Europe remains bright. Firstly, de-carbonisation needs to happen, to reduce the harmful effects on climate change of future (and past) emissions of carbon dioxide. Secondly, energy security is increasingly important. In a world where old alliances seem to count for nothing, no government wants to find themselves in a position where they have to rely on an allegiance which may no-longer exist. Both of these themes provide a supportive backdrop for a long-term investment in renewable energy infrastructure. Across the renewables infrastructure sector, there are trusts exposed to different types of renewable technology and portfolios have different degrees of quality. As such it will pay to do a little research, and establish which have the highest quality portfolios but whose share prices have been dragged down unfairly with the peer group. With discounts wide but dividend yields remaining resilient, this may be an interesting moment to add some defensive income to a portfolio.
Yahoo
24-05-2025
- Business
- Yahoo
QUALCOMM Incorporated (QCOM)'s Yield Catches Wolfe's Eye
Traditionally, tech stocks weren't known for offering dividends, but that's been changing as more companies in the sector begin returning capital to shareholders this way. This shift has drawn the attention of dividend-focused investors. Wolfe Research recently highlighted this trend by identifying stocks that fall into the second-highest tier of dividend yields—those paying out between 60% and 80% of the top yields—while also maintaining relatively low price-to-earnings ratios. This middle tier of dividend payers can be appealing to income investors because the highest-yielding stocks often face a greater risk of dividend cuts if their financial health deteriorates. QUALCOMM Incorporated (NASDAQ:QCOM) appeared on Wolfe's list. The company offers a dividend yield of 2.4%, and its stock has dipped only about 5% so far this year. Its forward P/E ratio stands at 12.55. Based in California, QUALCOMM Incorporated (NASDAQ:QCOM) is a global player in semiconductors, software, and wireless technology services. It has a strong track record when it comes to dividends, having increased its payouts for 21 consecutive years. In the latest quarter alone, QUALCOMM returned $2.7 billion to shareholders, including $938 million through dividends. Other analysts are also optimistic about QUALCOMM Incorporated (NASDAQ:QCOM). Nearly half of those covering the stock rate it as a Buy or Strong Buy, and LSEG data suggests the stock could climb nearly 20% from current levels. While we acknowledge the potential of QCOM as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for a deeply undervalued dividend stock that is more promising than QCOM but that trades at 10 times its earnings and grows its earnings at double digit rates annually, check out our report about the . READ MORE: and Disclosure. None. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
24-05-2025
- Business
- Yahoo
QUALCOMM Incorporated (QCOM)'s Yield Catches Wolfe's Eye
Traditionally, tech stocks weren't known for offering dividends, but that's been changing as more companies in the sector begin returning capital to shareholders this way. This shift has drawn the attention of dividend-focused investors. Wolfe Research recently highlighted this trend by identifying stocks that fall into the second-highest tier of dividend yields—those paying out between 60% and 80% of the top yields—while also maintaining relatively low price-to-earnings ratios. This middle tier of dividend payers can be appealing to income investors because the highest-yielding stocks often face a greater risk of dividend cuts if their financial health deteriorates. QUALCOMM Incorporated (NASDAQ:QCOM) appeared on Wolfe's list. The company offers a dividend yield of 2.4%, and its stock has dipped only about 5% so far this year. Its forward P/E ratio stands at 12.55. Based in California, QUALCOMM Incorporated (NASDAQ:QCOM) is a global player in semiconductors, software, and wireless technology services. It has a strong track record when it comes to dividends, having increased its payouts for 21 consecutive years. In the latest quarter alone, QUALCOMM returned $2.7 billion to shareholders, including $938 million through dividends. Other analysts are also optimistic about QUALCOMM Incorporated (NASDAQ:QCOM). Nearly half of those covering the stock rate it as a Buy or Strong Buy, and LSEG data suggests the stock could climb nearly 20% from current levels. While we acknowledge the potential of QCOM as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for a deeply undervalued dividend stock that is more promising than QCOM but that trades at 10 times its earnings and grows its earnings at double digit rates annually, check out our report about the . READ MORE: and Disclosure. None. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
21-05-2025
- Business
- Yahoo
300% More Clean Energy Equals a Big Growth Opportunity for This High Yield Stock
The world's gradual transition from carbon-based energy sources to cleaner alternatives is ongoing. Between 2020 and 2050, clean energy power generation in the U.S. is projected to grow by 300%. Yielding as much as 6.2%, this diversified clean energy company is a long-term growth opportunity for income investors. 10 stocks we like better than NextEra Energy › The world is in the middle of yet another power-source transition, this time from carbon-based fuels to cleaner alternatives. There have been similar major changes in history, and most took decades to complete. And while older fuel sources tend to remain important even as new ones rise, that doesn't change the growth opportunity presented by the shifts taking place. For income investors who want to step into the current transition, one stock in particular offers the chance to reap dividends that are well above the market's average yield and also benefit from the big growth opportunity that lies ahead. The world is increasingly worried about the impact that burning carbon fuels has on the environment. From pollution to global warming, there are very real reasons why solar, wind, and other clean alternatives are gaining favor. Companies focused on many of these power sources have already made significant strides in boosting the amount of energy produced using them, but there's still far more to come. For example, between 2020 and 2050, clean energy sources are expected to see 300% growth in the U.S. The big ones will be solar, wind, and battery storage. In the United States, the biggest growth is expected to occur in Western states, New York, and the Southeast. That's a fairly wide spread of locations, which means that numerous regulated utilities will be positioned to benefit. NextEra Energy (NYSE: NEE), which operates a regulated utility in Florida and has a large and geographically diversified renewable power business as well, is probably the best option within the utility pack. It's a solid choice, with a 31-year streak of annual dividend increases behind it, a 3% yield at the current share price, and a 10% annualized dividend growth rate over the past decade. That said, NextEra Energy is most appropriate as a holding for dividend growth investors. Those seeking to maximize income could do better with Brookfield Renewable (NYSE: BEP)(NYSE: BEPC). Brookfield Renewable is run by Brookfield Asset Management (NYSE: BAM), a large asset management company with a more than 100-year history of owning and operating infrastructure assets on a global scale. Brookfield Renewable is a source of permanent capital for Brookfield Asset Management, which means that you are investing alongside Brookfield Asset Management when you buy Brookfield Renewable. It is, essentially, run like an asset management business, buying and selling assets over time. Brookfield Renewable's core focus, as its name suggests, is the renewable power sector. It has perhaps the most diversified clean energy portfolio you can find, with hydroelectric, solar, wind, storage, and nuclear in the mix. And its portfolio is spread across North America, South America, Europe, and Asia. It is as close to a one-stop shop as you are likely to find in the clean energy sector. There are actually two ways to invest in it -- partnership class shares that currently offer a lofty 6.1% yield and corporate class shares that have a still-impressive yield of 5%. They represent the exact same entity and pay the same dollar value dividend per share -- the difference in yields is related to variance in the demand for each share class. Notably, many institutional investors are barred from owning shares of partnerships. Management has been steadily increasing the dividend over time, in line with its stated goal of hiking it between 5% and 9% each year. For dividend growth investors, NextEra Energy's 10% dividend growth rate will clearly be appealing. But the mix of a higher yield and still-strong payout growth that is on offer from Brookfield Renewable will be more attractive to those who are looking to maximize income. And even some dividend growth investors might be willing to give up some dividend growth for the opportunity to collect an upfront yield that's twice as high as NextEra's if you buy the partnership share class of Brookfield Renewable. Energy transitions happen over decades, not days. So the opportunity ahead of Brookfield Renewable presents a long runway for growth. Factor in its lofty dividend yield and you can clearly see why many investors will want to give serious consideration to adding it to their portfolios. If you do, you might find that one of the share classes of Brookfield Renewable ends up among your long-term income holdings. Before you buy stock in NextEra Energy, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and NextEra Energy wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $642,582!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $829,879!* Now, it's worth noting Stock Advisor's total average return is 975% — a market-crushing outperformance compared to 172% for the S&P 500. Don't miss out on the latest top 10 list, available when you join . See the 10 stocks » *Stock Advisor returns as of May 19, 2025 Reuben Gregg Brewer has positions in Brookfield Renewable Partners. The Motley Fool has positions in and recommends NextEra Energy. The Motley Fool recommends Brookfield Renewable and Brookfield Renewable Partners. The Motley Fool has a disclosure policy. 300% More Clean Energy Equals a Big Growth Opportunity for This High Yield Stock was originally published by The Motley Fool Sign in to access your portfolio
Yahoo
13-05-2025
- Business
- Yahoo
United Internet's (ETR:UTDI) Upcoming Dividend Will Be Larger Than Last Year's
The board of United Internet AG (ETR:UTDI) has announced that it will be paying its dividend of €1.90 on the 20th of May, an increased payment from last year's comparable dividend. Although the dividend is now higher, the yield is only 1.8%, which is below the industry average. While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that United Internet's stock price has increased by 35% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield. Our free stock report includes 2 warning signs investors should be aware of before investing in United Internet. Read for free now. The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. United Internet is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. In general, cash flows are more important than the more traditional measures of profit so we feel pretty comfortable with the dividend at this level. Earnings per share is forecast to rise exponentially over the next year. If recent patterns in the dividend continues, we would start to get a bit worried, with the payout ratio possibly reaching 372%. View our latest analysis for United Internet Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of €0.60 in 2015 to the most recent total annual payment of €0.40. The dividend has shrunk at around 4.0% a year during that period. A company that decreases its dividend over time generally isn't what we are looking for. Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. United Internet's EPS has fallen by approximately 23% per year during the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable. In summary, while it's always good to see the dividend being raised, we don't think United Internet's payments are rock solid. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We don't think United Internet is a great stock to add to your portfolio if income is your focus. Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 2 warning signs for United Internet that you should be aware of before investing. Is United Internet not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Sign in to access your portfolio
