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Over the past five years, I imagine many income investors will have encountered the Foresight Solar Fund (LSE:FSFL). Incredibly, the dividend yield has never materially fallen below 6%, currently sitting at a very respectable 9.84%. But based on dividend forecasts, things could get even better in the next couple of years.
Company specifics
The UK-listed investment trust allocates money to solar energy and battery storage assets. The portfolio includes 58 solar farms across the UK, Spain, and Australia. It makes money primarily from selling the electricity to businesses via long-term purchase agreements. It can also sell electricity directly into the market at prevailing market rates.
Given its contractual agreements, its cash flow has historically been reliable and strong. As a result, it has paid out quarterly dividends, which it aims to grow year by year. When including the latest dividend, which was declared in February, the business has paid out 2p per share for the past year. As a result, I can calculate the current yield. I used the total figure from the past year of 8p and divided it by the current share price of 81.3p.
Looking ahead
The current forecasts indicate that the quarterly dividend will continue to be paid. Starting in June, the next dividend is expected to rise to 2.1p per share and stay at this level for the subsequent four payments. In June 2026, this is expected to rise again to 2.19p per share. Finally, in June 2027 it could rise to 2.27p per share.
So if I take the calendar year for 2027, an income investor could expect to receive two lots of 2.19p and two lots of 2.27p. This would total 8.92p. If I assumed the share price would stay the same, the dividend yield would rise to 10.97%.
Of course, any investor needs to be careful when trying to predict the future. The risk is that the share price either rises or falls over this period. Over the past year the stock is down 1%. But if we see a larger move either way in 2026 or 2027, the yield could be higher or lower than the roughly 11% estimated.
One to consider?
I think it’s reasonable to assume that the dividends can keep growing. The dividend cover is currently at 1, which means the current earnings fully cover the income payments. This is good, and as long as this stays between 1 and 2, I don’t see a risk of income being cut.
One risk is the volatility in electricity prices. Should they fall in the coming year, it would negatively impact the fund’s revenue. Even with this, I think it’s a great stock for income investors to consider buying for their portfolio.
