Why this solar fund is a great portfolio addition
An investment that has a good track record of paying generous dividends, is genuinely diversified and has the potential to grow your money in the meantime is always going to be a popular thing.
An increasing favourite with institutional investors, FTSE 250 investment trust Foresight Solar (FSFL) would appear to fit the bill.
One of the main reasons infrastructure investment trusts in general have been popular, both for those accumulating wealth and those in retirement, is the good yields on offer.
Foresight Solar offers a 5.7% dividend yield. Anything between 4% and 6% is considered a good and crucially a sustainable yield.
New opportunities could be just around the corner as the first unsubsidised solar projects come online.
Thanks to increasing momentum behind renewable energy, building and running a solar farm in the UK is now becoming an economically viable thing to do without needing to rely on government handouts, something which could transform the industry and its growth potential going forward.
The fund has paid out all target dividends since its initial public offering in October 2013, during which time it has tripled in size.
The fund has returned on average 8.4% a year over the past five years.
It’s worth highlighting that Foresight Solar does trade at an 8% premium to net asset value, but that’s still lower than many other infrastructure and renewable energy investment trusts.
The fund also offers genuine diversification for investors.
It currently has 54 solar projects in its portfolio, 50 in the UK and four in Australia.
Of course when and how brightly the sun shines doesn’t depend on what happens on the stock market and, more importantly, neither do wholesale power prices.
The fund makes money, and therefore returns, by selling power from its solar farms to electricity suppliers. Although demand for energy is impacted by what is happening in the economy, other factors will play a part.
To pay down debt so it can invest in more such solar projects, Foresight Solar did recently raise £65m in an oversubscribed share issue.
Investor demand exceeding the number of shares on offer does illustrate the fund’s popularity, but also the continued risk of dilution for existing shareholders as it looks for new opportunities.
The fund does have an ongoing charges figure of 1.18% a year, but for the attractive dividend on offer, reasonable returns and genuine diversification – which could be important with the issues affecting stock markets – it is a figure worth paying.