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I reckon NextEnergy Solar Fund (LSE: NESF) is a stock worth consideration now, at least for me.
The technology behind solar energy is great. Those familiar black panels have evolved a lot over the years and can now harness the sun’s energy efficiently.
It warms my heart to see fields filled with low-profile solar panels. They’re much less intrusive on the landscape than wind generators. And it makes sense to me to aim to turn the negatives of global warming into the positive of renewable and sustainable energy.
Effective technology
Solar farms work by producing electricity using the photovoltaic effect. And that involves harnessing radiation from the sun.
According to NextEnergy Solar Fund, a solar panel consists of many individual solar modules. And several panels together form an array. Then it takes multiple arrays to create a solar farm.
A gizmo called an inverter converts the electricity these farms produce into alternating current (AC). And then a step-up transformer converts the energy to the voltage required for the grid for transmission to where it’s needed.
Solar farms record the energy they’ve supplied to the grid on a meter. And, technically, that’s all there is to the business model – simple!
And I love simple business models.
So, it’s handy to know that NextEnergy Solar Fund aims to invest in solar and complementary storage assets with the aim of delivering a reliable and growing dividend – nothing more and nothing less. The investment proposition is as simple as the underlying business model, and I like it.
Non-executive directors run the FTSE 250 investment company. And they’re responsible for overall management, strategy, governance and financial reporting.
Meanwhile, the day to day activities, investment management and administration is outsourced to external service providers. And that means the running of the business and execution of the strategy is again simple and potentially effective.
Consistent dividends
The dividend record is pretty good. Over the past few years, the compound annual growth rate (CAGR) has been running at just over 2.5%. And with the share price near 102p, the forward-looking yield for the trading year to March 2024 is around 8%. And I see that valuation and income level as attractive.
On 19 June, the company delivered its full-year results to 31 March 2023. And what I’m looking for is boring and predictably steady progress in the figures. Indeed, an investment in the company is unlikely to produce whizz-bang surprises in a portfolio.
The company hasn’t disappointed. Net asset value rose a smidgen and the total dividend for the year is just over 5% higher than the prior period.
Meanwhile, borrowings seem to be under control and there’s strong asset backing from the assets anyway.
One possible risk is that the share price has shown a fair bit of volatility over recent months and years.
However, with the stock near the bottom of its recent trading range and a focus on the yield, I see the current level as attractive.
Another potential risk is that the assets are all solar-related. If anything happens in the future to make the category unattractive, shareholders may suffer here.
Nevertheless, as part of a diversified long-term portfolio of stocks, NextEnergy Solar Fund is a no-brainer stock for me to buy now – all I need is some spare cash!
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