NextEnergy Solar (NESF ), the highest-yielding renewable infrastructure fund, will hope a 5% increase in this year’s dividend target will help re-rate its shares as the £642m investment company looks to raise more money for a £350m investment pipeline.

In the year to 31 March NextEnergy paid covered quarterly dividends totalling 7.16p per share. In annual results this week it lifted its target for the current financial year to March 2023 to 7.52p. Although the 5% rise is well below the latest 11.7% annual rate in inflation, as measured by the retail prices index (RPI), NextEnergy said it was above the 4.1% RPI originally forecast by the Treasury for this year.

At yesterday’s closing price of 109p, that puts the shares in the eight-year-old closed-end fund on a forward yield of 6.9%, ahead of the 5.3% average of its peer group. The payouts were 1.2 times covered by cash earnings last year and the board is aiming to increase this to between 1.3 and 1.5 times this year.

Strengthening the high dividend could bolster appeal for the portfolio, which flagged up it was looking to raise more capital soon to enable fund managers Michael Bonte-Friedheim and Aldo Beolchini at NextEnergy Capital to invest in more solar parks and battery storage schemes in the UK and Europe.

As at 31 March the Guernsey investment had £19.6m cash and £49m left of its £145m credit facility.

The fly in the ointment is the 4% discount at which the shares trade below their net asset value of 113.5p at 31 March. The board, chaired by Kevin Lyon, will need to get the stock above NAV before they can issue more shares, unless they want to dilute and anger investors, including top holders, fund managers Artemis, M&G and Gravis Capital. The shares last stood at a small premium over NAV in March, according to Hargreaves Lansdown.

Stifel analyst Iain Scouller retained his ‘positive’ rating but said ‘equity issuance appears difficult’ with the shares trading below their ‘historic NAV’.

Power surge

The results confirmed the now 100-asset portfolio made a total underlying investment return of 14.8% in the year to March, boosted by surging power prices and rising inflation assumptions with revenue up 19% to £114m.

Over five years, however, the shares have provided a total return of 29.8%, below all five rivals with a track record that long.

‘Over the course of 12 months there has been a dynamic shift in the UK and other power markets. We saw exceptional support from COP26 promoting the continued roll-out of renewable technology, alongside increased market volatility, and record power prices in the UK and abroad,’ the fund managers said.

The pair entered the energy storage sector in the UK via a £100m joint venture with energy supplier Eelpower, targeting the establishment of up to 250MW in projects. The first 50MW battery asset under construction is expected to go live in early 2023, with a one-hour duration initially, which will be later increased to two hours.

They also committed $50m (£40.7m) to their group’s NextPower III fund which raised $896m in January, giving it access to solar projects in OECD countries, starting with its first developments in Spain and Portugal.

During the year, the 99 operational assets generated 773 GWh of energy, 1.8% above budget although the outperformance could have been higher at 3.6% were it not for unforeseen distribution network operator outages.

The company generates half its revenues from RPI-linked government subsidies, with the remainder from selling its power in the open market. Of this portion, 85% of this year’s sales have been fixed to capture the current high prices, with the proportion of fixes falling to 74% and 42% in 2023 and 2024.