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Growing a passive income stream through dividend paying stocks is a key part of my investment strategy. When I consider any share that might be bought, I look at the product offered. I noticed that Next Energy Solar Fund (LSE:NESF) currently offers a dividend yield of over 7%. Would a distribution stock be a good option for me to buy and hold?
Solar Panel Investment Fund
As an introduction, NextEnergy is an investment fund that focuses on solar energy infrastructure assets. As I write, it has a total of 865MW of power generation assets in the UK.
Solar power, like many other renewable energy options, has grown in popularity in recent years. This is because the planet is fighting climate change and many governments want to reduce harmful carbon emissions.
So what’s going on with NextEnergy shares right now? Well, as I wrote, they are burning at 103p. This time last year, the stock was trading for 94p. That’s a 9% return over a 12-month period.
To buy or not to buy
So what are some pros and cons of buying NextEnergy shares?
bA big positive for me is the current renewable energy market in general, as well as the growth of NextEnergy. Renewable energy is a growing market worldwide as demand for electricity continues to rise, with everyone racing to create alternative fuel solutions. Energy has continuously grown its assets since its inception. For the past eight years, they have grown the product year after year. In addition, the costs are mostly fixed, which helps increase growth and stock returns.
against: As a real estate investment trust, NextEnergy must return 90% of profits to shareholders. My issue here is using loans to finance growth. I keep a close eye on the balance sheet because I’m usually out of debt.
b: As a potential dividend stock, NextEnergy’s yield looks strong right now. It has a track record of increasing its payout since 2015. This is important to me because I want to increase my holdings in stocks that pay regular and consistent dividends. In addition, the shares currently look cheap at a price-to-earnings ratio of five.
against: As with any passive income fund, it’s worth remembering that dividends are never guaranteed. They may be canceled at any time at the discretion of the business. This is usually to save money during economic volatility or unexpected events.
I buy a dividend
Judging by all the data at hand, I like the look of NextEnergy shares. I believe it can be a great stock to grow my passive income stream while working in a growth market. But I know the dangers.
I am happy to add NextEnergy shares to my holdings.