Bluefield Solar Income Fund (BSIF ) has pared back this year’s dividend target as the board intends to conserve cash for share buybacks, repaying expensive debt and investing in its project pipeline.

The £763m investment company is targeting an 8.9p-per-share dividend for the year to June 2025, a mere 1.1% increase on the 2024 payout of 8.80p which means income seekers will see their annual payout increase less than inflation’s 2%.

Fund manager James Armstrong told Citywire that on a pence-per-share basis, the dividend was among the highest in the 8.3%-yielding fund’s renewable infrastructure sector and reflected the board’s prudent capital allocation.

Over three-quarters of the portfolio is contracted at high revenues, meaning the dividend should be fully covered. 

‘If there’s the ability to go above [8.9p], we would discuss that with the board, but at the moment there are clear demands on capital. If the shares remain at a discount, we’ll want to keep buying back shares beyond the flagged £20m and paying down debt, which we think is sensible,’ Armstrong (pictured) said.

Bluefield Solar’s net asset value tumbled 7.1% from 139.7p per share to 129.75p over the 12 months to 30 June, reflecting lower long-term electricity prices and lower inflation expectations, annual results showed.

A 3% fall in energy generation also weighed on the portfolio of UK solar and wind assets, owing in part to a particularly rainy year.

In addition, an ongoing programme to replace inverters, which convert the direct current energy generated from assets to alternating current that can then be delivered to the national grid, required planned outages.

Armstrong said the results looked weaker than 2023’s blockbuster figures, but highlighted Bluefield’s partnership with GLIL Infrastructure, which enabled it to raise capital at a time when renewables funds couldn’t issue shares with their stock trading at steep discounts to asset value.

In July, after the financial year-end, Bluefield sold half of a 112MW portfolio of nine assets to GLIL Infrastructure in the second phase of its partnership with the group of pension funds. It then used £50.5m of the £70m proceeds to repay debt, which now stands at £134m and on which it pays a 7% interest rate.

The next phase of the partnership will see the pair build 10% of Bluefield’s pipeline assets. This includes the 25MW battery-storage asset being built beside the 44MW Mauxhall Farm, a solar park in north-east Lincolnshire that is due to come online early next year. It also includes asset life extensions, which will add 17MW.

Despite the board’s actions, which include spending £16.1m on buybacks, the shares – off 0.7% at 109p on Monday – stand on a 16% discount, which is around average for the renewables sector.

Armstrong noted that the recent exemption of misleading cost disclosure requirements could help encourage investors back to the sector and rerate the shares.

He added that as UK government bond yields continued to fall and the Bank of England makes clear that it is an interest rate-cutting environment, sentiment could improve too, with the sector’s only recent buyers being arbitrageurs that have taken advantage in discount narrowing.

AJ Bell’s decision to restrict investors from buying Bluefield Solar earlier in the year after it failed the online broker’s fair value assessment didn’t help the share price in April.   

‘Some investors were selling out as they were very concerned about it and didn’t really understand. It made AJ Bell look really, really amateurish, to be quite honest,’ Armstrong said, adding that ‘when you’ve a few headwinds, that sort of thing, a mistake by a big player like AJ Bell is just not useful.’

Over five years, shareholder returns of 17% trail the portfolio’s 56% gain, whereas the FTSE All-Share index has risen 33% for reference, Deutsche Numis shows.

Jefferies analyst Matt Hose said the underlying dividend cover and dividend growth were ‘disappointing’ for investors, but noted an increase in cover going forward.

‘Looking forward, we would expect this cover to improve, however, given the below-budget irradiation for the year and the net additional operational capacity following the year-end.

‘We also note the fund continues to benefit from a high level of power price fixing, with a weighted average contract price remaining in excess of £100 per megawatt hour.’