These 2 FTSE 250 stocks now yield more than 10% – is that income sustainable?
FTSE 250 stocks aren’t just for growth. Some are absolute income machines. I’ve just landed on two that offer bumper double-digit yields.
If an income-hungry investor had £2,000 to tuck away, should they consider splitting it between these two?
Foresight Solar Fund shines
First up is Foresight Solar Fund (LSE: FSFL), an investment trust that currently offers a red-hot trailing yield of just over 10.3%.
The company invests in solar farms and battery storage, with 58 sites spread across the UK, Spain and Australia.
Despite a gloomy 2024 for sunshine, the UK’s worst since 2013, Foresight still hit its 8p dividend target. And that’s covered 1.4 times by earnings.
Management has pencilled in an 8.1p dividend for 2025 and expects that to be covered 1.3 times. That gives me some confidence the yield may hold up, although as ever, these things are never guaranteed.
The board is actively hedging electricity prices, locking in 88% of 2025 revenues and 69% for 2026. Of course, this doesn’t remove all risk. If electricity prices plunge or the group’s planned Australian asset sale is delayed further, that could squeeze cash flow.
With net asset value slipping to £634m from £698m the year before, there’s pressure to deliver on disposals and keep investor confidence high.
Still, I think income-focused investors might consider this one. Especially with those hedges in place and dividends forecast to keep rising. They should also remember that renewable energy can be a volatile sector, there’s a bit of a backlash against net zero, and falling fossil fuel prices may up the competition. The shares are down 15% over one year and 25% over five, wiping out much of the income.
Foresight Solar Fund looks cheap as a result, trading at a whopping discount of almost 30% to underlying net asset value. As ever with discounts, there’s no guarantee this will narrow.
TwentyFour Income Fund
The TwentyFour Income Fund (LSE: TFIF) is a very different beast. This Guernsey-based investment trust focuses on European asset-backed securities, pools of mortgage and loan repayments bundled together and sold as investments. That might sound complex, but the appeal is clear: a fat dividend.
The fund just paid a record 11.07p over the past year, giving it a 10.1% yield at the current share price. It’s been a strong performer in a niche part of the bond market, with total returns last year of 16.9% including dividends.
Crucially, this fund operates a full payout model: all income gets passed on to shareholders. But that also means there’s no buffer if things go wrong.
If defaults rise or liquidity dries up, the dividend could come under immediate pressure. Still, with £840m in assets and only £26m in liabilities, the balance sheet looks reassuring. This dividend could endure too, but as ever, there are no guarantees.
Investors might consider buying this one for income, although I’d want to keep a close eye on the economic outlook. European asset-backed securities can be lucrative, but they’re not immune to volatility. There’s no discount here, the trust trades at a narrow 0.36% premium to underlying net asset value. I actually find that reassuring.
Both funds sit on eye-catching yields and have delivered income in tough conditions. I think they’re worth considering but only for experienced investors who already have a diversified portfolio and are looking for something a little different with bags of passive income.
The post These 2 FTSE 250 stocks now yield more than 10% – is that income sustainable? appeared first on The Motley Fool UK.
5 Shares for the Future of Energy
Investors who don’t own energy shares need to see this now.
Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.
While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions,
he says. Mark believes 5 companies in particular are poised for spectacular profits.
Open this new report — 5 Shares for the Future of Energy
— and discover:
- Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
- How to potentially get paid by the weather
- Electric Vehicles’ secret
backdoor
opportunity - One dead simple stock for the new nuclear boom
Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!
More reading
Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Foresight Solar Fund. 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.
