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The London stock market can be a great place to find passive income stocks. It’s packed with mature, market-leading companies with strong balance sheets. And years of share price underperformance mean it’s home to a wide variety of attractive high-yield dividend shares.
US Solar Fund (LSE:USFP) is one such company on my own shopping list today. For the current financial year, its dividend yield clocks in at a staggering 10.5%. This is well above the FTSE 100 average of 3.5%.
If broker forecasts prove accurate, a £15,000 investment in the company would provide a substantial £1,575 passive income.
And that’s just for this year. I’m confident the company will steadily grow its dividends over time too.
Shareholder payouts are never guaranteed, of course. But here’s why I think the fund could be an excellent income share for long-term investors to consider.
Sunny outlook
As its name implies, US Solar Fund invests in solar power assets on the other side of The Pond. This can have two big advantages for dividend investors.
Firstly, the static nature of energy demand means cash flows remain stable at all points of the economic cycle. And so power producers like this — which have their customers locked in to long-term offtake agreements — are famously reliable dividend payers year after year.
Secondly, renewable energy businesses have significant scope to grow earnings as green power gains share from fossil fuels. This in turn bodes well for future dividend growth.
I like this particular fund given how supportive state and federal policy is towards renewable energy fund is in the States. US Solar Fund owns 41 projects spread across California, North Carolina, Oregon and Utah.
Risks
That said, there’s some uncertainty for the country’s green energy industry ahead of November’s election. A win for Donald Trump could see a reduction in tax rebates and introduction of other unfavourable measures.
One other thing to remember is that renewable energy generation can be highly unpredictable. US Solar Fund’s total power output was 11.6% below expectations during January-March due to what it said was “below forecast solar irradiance”.
However, the fund still had the means and the confidence to pay a first-quarter dividend of 0.56 cents per share. And so it remained on course to pay its planned half-year reward of 2.25 cents. The company has a $20m revolving credit facility it can call on to support its capital allocation plans.
Great value
Like any stock investment, renewable energy shares are not without risk. But on balance I think US Solar Fund is a top dividend stock to consider today, and especially at current prices.
At 34p per share, it carries that enormous 10%+ dividend yield, as described earlier. It also trades at a near-40% discount to the value of its assets. Its net asset value (NAV) per share stands at around 75p.
