Reliable passive income’s a goal for many investors. One way to generate such cash flow is via buying dividend stocks. The process of banking or reinvesting the dividends can act as an income stream.
Based on this stock’s dividend yield and outlook, this could be the most attractive option to consider in the FTSE 250 right now.
Details of the company
I’m referring to the NextEnergy Solar Fund (LSE:NESF). The share price has fallen by 27% over the last year, with the dividend yield at 12.89%.
The fund primarily invests in solar plants, located mostly in the UK. It generates revenue by selling the electricity generated by these plants. Due to the nature of renewable energy, it also benefits from government support, including subsidies and other measures.
Given that the assets generate steady and reliable income, it’s been a reliable dividend payer for over a decade. Year by year, it steadily increases the dividend per share payments, currently standing at 2.11p per quarter. The fact it’s paid each quarter is another benefit shareholders will appreciate, instead of having to wait once a year.
The share price drop
Some might be cautious right away by the fall in the share price. It’s true that this is one factor that’s recently helped to push the yield higher. Yet when I look at the reasons behind this, it’s not really due to elements the business can control.
In 2024, there have been reductions in short-term UK power price forecasts, causing investor concerns about the impact this could have on future revenue for the solar fund. Further, even though interest rates in the UK are now falling, they have remained higher for longer than many expected. Due to the debt levels and borrowings needed to fund new asset purchases, elevated rates make it more costly to run the business.
These do remain risks. However, if an investor doesn’t see these as long-term problems, then the fall in the share price can represent an attractive dip to buy, given the dividend yield.
Top of the tree
In terms of getting the tag of the best income share to buy right now, part of the focus will always be on the dividend yield. At almost 13%, it’s one of the highest in the entire FTSE 250. Given that the current dividend cover’s 1.2, this doesn’t appear unsustainable. Any figure above 1 means that the dividend is fully covered by the latest earnings per share.
Another factor considered a gem is the fact that the current price might not fully reflect the positive outlook. Let’s face it, renewable energy’s the future. Even though stocks in this sector aren’t a hot topic at the moment, it’s unlikely that this will continue in years to come.
Overall, I think this is a great income stock for investors to consider. Although the question of it being the best is subjective, it certainly should be on the list for consideration.
