A 10.1% dividend yield but down 35%! Time for me to buy this FTSE gem?

Renewable energy stocks haven’t been very popular in 2025, yet these businesses currently offer some of the highest dividend yields in the FTSE. And it’s no secret that some of the best buying opportunities can often be found in the least popular sectors.

Take Foresight Solar Fund (LSE:FSFL) as a prime example. Since its peak in September 2022, the solar farm enterprise has seen more than 35% of its market-cap wiped out. And yet, despite the drop in share price, dividends have continued to flow. So much so that the yield now stands at a staggering 10.1%.

So is this a no-brainer for passive income-seeking investors?

Investigating performance

As a quick crash course, Foresight Solar’s a unique investment trust. It actively manages a diversified portfolio of solar farms across the UK and Europe.

The business model’s fairly simple. Acquire a stake in solar assets, let them generate renewable electricity, and then sell that electricity to the national grid, returning the bulk of profits back to shareholders via a dividend.

So long as the sun’s shining, Foresight’s making money. And this recurring stream of cash flow has translated into 10 years of consecutive dividend hikes.

However, with most of its earnings being paid out to shareholders, the company has to rely heavily on debt to finance its expansion efforts. This strategy worked flawlessly when interest rates were near zero.

But with rates having been hiked aggressively, the group’s leverage turned into a massive liability. And with cash flows gobbled up by debt servicing costs, investors began to flee, triggering the steady decline in its share price, pushing the yield into double-digit territory.

Are dividends sustainable?

Despite the pressure on cash flows, dividends have continued to be covered. And in 2025, management projects its dividend coverage ratio to sit at 1.3. That suggests shareholder payouts, even at the current yield, remain affordable. But it’s still a notable reduction from the 1.7 coverage ratio reported in 2022.

The good news is that with interest rates steadily falling, the pressure from its debt is expected to subside slowly, improving dividend sustainability at the same time. That certainly suggests the 10.1% yield’s here to stay. So why aren’t more investors jumping at the opportunity?

While interest rate cuts are seemingly on the horizon, that’s not the only thing holding back profits. Long-term energy price forecasts all point towards lower power prices in the future. And since that’s a key driver of Foresight’s cash flow, investors remain concerned about a future dividend cut even in a lower interest rate environment.

The bottom line

Looking at the latest analyst insights from institutional investors, most praise the firm’s ability to continue rewarding loyal shareholders with dividends. However, overall, most appear to have a ‘wait and see’ attitude towards the stock, citing external uncertainty.

While this cautious approach makes sense, uncertainty appears to already be baked into the share price, with Foresight shares trading at a pretty chunky 30% discount to its net asset value. As such, investors hunting for a high sustainable dividend yield may want to take a closer look… I certainly am.

The post A 10.1% dividend yield but down 35%! Time for me to buy this FTSE gem? appeared first on The Motley Fool UK.

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Zaven Boyrazian 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.

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