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When a dividend stock’s yield rises above 10%, I tend to get a bit nervous. It suggests the market is pricing in bad news to come and a probable dividend cut.
Before today (11 March), NextEnergy Solar Fund (LSE:NESF) sported a mammoth 15% yield. But that level of income proved to be a shimmering desert mirage as the solar energy investment trust just announced a massive cut to its payout.
As I write, the share price is down 13%, so investors haven’t reacted well to the news. It leaves the stock, which was relegated from the FTSE 250 last year, 61% lower than in September 2022.
Yet, NextEnergy Solar Fund is targeting a FY26/27 dividend in the range of 4p to 4.6p per share. At the current share price of 47p, that suggests a yield of at least 8.5% (and possibly over 9%).
So, might this be a high-yield stock to add to my income portfolio this month?
Strategic reset
At the end of 2025, NextEnergy Solar Fund had 101 solar assets primarily in the UK and Italy, as well as one energy storage asset.
Like many renewable energy trusts, it has been hit hard by the higher interest rate environment. This has made servicing its debt more expensive and cut the present value of cash flows from its solar farms.
Today, the fund announced a strategic reset to try and deliver better shareholder results. The headline change is that it will transition from a progressive dividend policy to one that targets a 75% distribution of operating free cash flows (after debt servicing and fund operating expenses).
This will free up approximately £40m over the next five years to increase debt repayments and offer flexibility to support future growth opportunities. It plans to reduce the debt level to between 40% and 45% of total assets.
Other long-term goals include:
- Provide shareholders with a total return of 9% to 11%.
- Restart net asset value (NAV) growth.
- Initiate regular capital recycling for reinvestment (sell old assets to buy higher-yielding new ones, basically).
- Repower existing assets by using new solar technology to increase power output.
- Increase energy storage assets to 30% of the portfolio.
Investing more in energy storage assets should help, as these can make a higher profit than solar alone. It would also help diversify the portfolio.
When co‑located with solar, energy storage can optimise generation to align with demand, unlock additional revenue streams, and materially strengthen project economics by maximising the value of existing grid connections, which remain a critical constraint in the current market.
NextEnergy Solar Fund
Political risk
There are things to like beyond the massive forecast yield. The government’s Clean Power 2030 mandates a tripling of solar capacity to 50GW, as well as a four-fold increase in energy storage. So the current backdrop for sector growth is very supportive.
However, I also think there’s significant political risk here. Recently, the government changed how green subsidy payments were linked to inflation, which was essentially a pay cut for renewable energy companies.
Plus, Reform UK has said that if elected in 2029 it will impose windfall taxes on the renewable sector. While this may never come to pass, it does introduce an uncomfortable level of political risk, in my opinion.
Therefore, while investors might want to take a closer look, I see safer dividend stocks elsewhere for my ISA today.
