Bluefield Solar Income (BSIF ) paid out a full-year dividend ahead of target as the portfolio of solar and wind assets delivered record earnings.

The board of the £723m trust declared a dividend of 8.6p per share, 0.2p above target, and announced a target of 8.8p for the next financial year.

This year’s dividend is covered 1.71 times by underlying earnings post-debt of 14.7p, driven by higher power prices and strong operational performance.

Writing in annual results, manager James Armstrong said the year to 30 June was the most successful in the 7.4%-yielder’s decade-long history with record earnings and dividend cover. However, it is also its first time the share price has been at a significant discount to net asset value, currently sitting at 16% and widening from 7% a year ago. 

NAV per share fell from 140.39p to 139.7p, reflecting higher interest rates, and a higher discount rate of 8%, offsetting the sharply increased electricity prices.

Armstrong noted that the financial shocks that have precipitated the fall in asset values, sharp rises in gilt and interest rates, have only heightened BSIF’s five core strengths: Using solely fixed rate debt, fixing power price agreements at the short end of the power curve, actively managing its portfolio, developing its pipeline of assets and being disciplined with capital.

With the discount preventing BSIF from raising equity, Armstrong has turned to earnings and increased debt levels, which now total 41% of gross asset value, to fund pipeline projects. Long-term borrowing costs total 3.5% on average.

At period-end the portfolio comprised 129 solar plants, six wind farms, and 109 small scale UK onshore wind turbines with a total capacity of 812.6 megawatts.  

The company’s development pipeline now stands at over 1.4 gigawatts and the first development to be funded, Yelvertoft, is progressing through construction. The 49MW project is set to be connected to the grid towards the end of 2023.

BSIF has a 5% investment limit in pre-construction development stage activities, while less than 1% is currently committed.

Armstrong was confident the strong results and increased dividend would rerate the shares in the short term, which are trading at a slightly narrower discount compared to the sector average of 17.4%, according to Numis data.

Peel Hunt’s Markuz Jaffe noted that the upgraded full-year payout brought dividend growth much closer to the average across the broader listed infrastructure peer group.

Liberum’s Joachim Klemet was also positive and pointed out the yield is now above the sector average of 6.9% and the trust has the second highest 5 year total underlying return in the sector after Greencoat UK Wind (UKW ) and has outperformed the sector year to date. 

Bluefield has returned 75.2% across five years and 2.6% year to date, compared to the Numis peer group average of 72.2% and 1.7% respectively. 

Klement has a buy recommendation with a target price of 145p. Shares were trading slightly down this morning at 118p.