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The 250 companies on London’s secondary index, the FTSE 250, can provide a ripe hunting ground for those wishing to maximise their income from dividends. At the top end, yields of 10% or more do exist. And today, the number one dividend payer is Bluefield Solar Income Fund (LSE: BSIF) that’s shelling out an incredible 12.54%.
But before jumping in, it’s worth remembering a few things about investing. For one, we shouldn’t be buying just for a percentage yield. We’re not simply buying a ‘stock’ either. Any money stumped up is an investment in the company itself, its operations and its long-term sustainability. This can help us decipher whether such a massive dividend yield is a golden opportunity or simply a flash in the pan.
The basics
To start with, what does Bluefield Solar Income Fund do? As the name suggests, the trust invests in solar energy assets across the UK. This has expanded to wind and energy storage assets too in recent years. Because much of its income is derived from inflation-linked government subsidies on the push to Net Zero, the fund aims to offer a generous dividend.
On the dividend, the current yield (based on the last 12 months of payments) is unusually high. The last 10 years suggests a yield of 6%-7% is more typical of what to expect.
The reason the yield has surged to double digits is intertwined with its falling share price. The shares were changing hands for 143p as recently as 2022. Since then, a 52% drop in the price has pushed that figure down to 69p along with bumping the dividend yield up too.
So what happened?
Crisis?
There’s no one single cause for the drop in the share price. Issues include rising interest rates, political uncertainty and changing longer-term forecasts of renewable energy. The upshot is that those safe, inflation-linked revenues are looking a lot more uncertain.
One red flag in this regard is the huge discount on ‘Net Asset Value’ or NAV. Estimates put the NAV per share at 114p. But the current share price is 69p, a whole 40% cheaper. This suggests that the markets don’t agree with the company’s assessment of its own assets.
The future for the fund is an uncertain one. The company was mulling a change to its business model. This was met with opposition from shareholders. Consequently, the firm has taken the decision to put itself up for sale. No buyers have emerged in the three weeks since that announcement.
What happens from now is difficult to predict. But one thing I’m fairly confident on is that 12% yield is not long for this world. Personally, I’m not interested in adding this type of stock to my portfolio at this stage.
