Page 45 - DIY Investor Magazine | Issue 41

NCYF pays quarterly dividends, having paid at least a 1p dividend each quarter for the last five years, with a larger (and growing) dividend paid in the fourth quarter. NCYF also has revenue reserves of £16m, enough to cover its dividend 0.6 times.
TWENTYFOUR SELECT MONTHLY INCOME
The presence of two bond funds in this list shouldn’t be too great a surprise, given the income advantages the asset class has. TwentyFour Select Monthly Income (SMIF) also showcases the income potential of bond funds.
‘A REGULAR Unlike NCYF, SMIF focuses on AND FREQUENT debt issued by financial companies DIVIDEND PAYMENT’ and asset-backed debt, primarily in Europe. With a generally defensive investment approach, SMIF’s portfolio features conservative risk characteristics, such as a sub-three-year duration.
Other than the differences in its portfolio, and thus the pos- sible tailwinds supporting it, SMIF is set apart by its dividend schedule, targeting an annual dividend of
at least 6.0p per year, paid monthly, with its final
dividend also including any excess revenues. While SMIF doesn’t guarantee its dividend, it has exceeded this target each financial year.
A regular and frequent dividend payment may be an advantage for SMIF, but it means that it unfortunately has no revenue reserves to support its target, although it does have the ability to fund its dividend from capital when needed. Like NCYF, SMIF has also tended to trade on
a premium (currently 2.2%) and has been issuing shares.
NEXTENERGY SOLAR FUND
As the name implies, NextEnergy Solar Fund (NESF) holds a portfolio of primarily UK-based solar energy infrastructure and complementary energy storage assets. Since launch nearly a decade ago, NESF has built a 1,018MW portfolio of 103 operating solar assets, powering the equivalent
of over 300,000 homes and declared dividends totalling £345m. Over the 12 months ended 31 March 2024,
it generated 852GWh of clean electricity, avoiding the emission of 279.3KtCO2e of greenhouse gases.
NESF’s portfolio generates enviable cash flow, with its
end March 2024 financial year target dividend of 8.35p covered 1.3 times. Although NESF lacks revenue reserves, its predictable cash flow allows the board to announce
a fully covered dividend for each forthcoming financial year, a goal achieved in every year so far. The target for the cur- rent financial year is for dividends totalling 8.43p and cover between 1.1x and 1.3x.
NESF has the highest yield of this group, a result of both its strong cash flow and wide discount. Generally, with this analysis we tried to avoid trusts that offered a big yield just because they were trading on a big discount.
However, if the trust’s 22.6% discount closed, it would still be offering an attractive yield.
NESF is part-way through a capital recycling programme
– selling off assets to fund debt reductions and returns of capital to shareholders. Sales
‘THE HIGHEST YIELD achieved to date have been done
OF THIS GROUP, A at attractive prices and the board
RESULT OF BOTH ITS has indicated that good progress
STRONG CASH FLOW is being made with the rest of its
AND WIDE DISCOUNT’ planned sales, which could act as
a powerful catalyst for a positive rating of its shares.
HENDERSON HIGH INCOME
Henderson High Income (HHI) is the most conventional
of the four trusts, favouring well-known UK dividend payers. However, HHI goes beyond the standard UK equity dividend strategy. Manager David Smith has steered the portfolio toward UK mid-cap stocks, capitalising on their attractive valuations, and has a small allocation to non-UK assets. HHI can also invest in global bonds, typically
when the income and capital return profile of bonds is ad- vantageous relative to equities. Currently, HHI has
a 10% allocation to fixed interest.
David’s flexible approach and proven management skills (having outperformed the wider UK market over 1, 3, and 5 years) make HHI one of the most attractive UK income strategies. This attractiveness was a key factor in the recent ‘ONE OF THE MOST
merger of Henderson ATTRACTIVE UK
Diversified Income (HDIV) INCOME STRATEGIES’
with HHI.
HHI pays four equal dividends each year and is expected to pay a total dividend of 10.54p for its current financial year.
Despite its strengths, HHI’s discount has widened over the last six months, likely due to general aversion to UK equities. HHI has historically traded closer to its NAV, with 2020 being last time it traded on a comparable discount, due to the effects of the pandemic.
However, its 9.0% current discount presents a potentially attractive entry point, as future interest rate cuts by the Bank of England and greater confidence in the UK post the election, could boost investor confidence in UK equities.
David Johnson is an analyst at QuotedData:
45 DIY Investor Magazine
· August 2024