2 infrastructure dividend shares with yields of 7% or higher
When it comes to dividend shares, some of the most reliable companies to focus on come from the infrastructure sector. Yet, for some stocks in this area, it’s not just the track record that can impress investors. Rather, the high yields are also noteworthy. Here are two to consider.
Healthy dividend cover
The first one is the Octopus Renewables Infrastructure Trust (LSE:ORIT). The trust invests in a range of renewable energy projects, including wind and solar plants. It also has exposure to energy storage systems.
It makes money via the infrastructure it invests in, such as by selling the energy to consumers. This creates good cash flow, which then can be used to pay out dividends to investors.
Over the past year, the share price has fallen by 24%. Part of the reason for this is “challenging macroeconomic conditions”, which the management team flagged in the half-year report. This includes interest rates staying higher for longer, causing new debt to be more expensive to fund projects for Octopus.
However, the dividend cover is at a healthy 1.33 times, meaning that the current earnings per share easily cover the dividend payments. Further, there are exciting new initiatives set to start shortly, including a new power purchase agreement with Sky UK starting in April. These should help to boost revenue in the coming year.
The dividend yield of 8.76% is very attractive. Although the risk of interest rates staying elevated for 2025 remains, it’s clear that the company has been able to deal with this in 2024.
Diversified infrastructure exposure
A second company for investors to consider is HICL Infrastructure (LSE:HICL). The stock provides investors with exposure to a diversified portfolio of essential public and private infrastructure assets. These include hospitals, schools, and transport networks.
It makes money by having long-term contracts with government entities, local authorities or private operators. The income received from these contracts provides the cash flow to pay out to shareholders. To this end, the current dividend yield is just below 7%.
It’s true that the share price is down 14% over the last year. This is one factor that has pushed up the yield. The drop can partly be explained by a fall in the valuation of the assets in the portfolio. As the share price should closely track the net asset value of the portfolio, this makes sense. This remains a short-term risk for investors this year.
Investors might find this infrastructure stock appealing not only because of the high yield but also due to the diversified portfolio. It has exposure to a wide variety of projects, as well as different clients. This should protect it against a black swan event in one particular area.
Overall, both income stocks could be attractive for dividend investors to contemplate including going forward.
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Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
