Yahoo Finance A 10pc dividend rise, yet the shares have barely moved – buy this trust before the market catches on
You would expect news of a planned double-digit rise in the dividend to get the shares of any company or investment trust moving but it hasn’t happened so far with the Octopus Renewables Infrastructure Trust, which last week raised its dividend target by 10.5pc. This creates an opportunity for us.
If the trust meets its dividend target of 5.79p for the year to December (the target for the year just ended was 5.24p and the trust said last week that it expected to meet that target), it will yield 5.9pc at the current share price of 97.4p. This is a very generous yield for a company that has said it intends to raise its divi by 10.5pc.
We would therefore expect the shares to have moved higher in response to the announcement but on the day they barely shifted, and although yesterday the price finally rose by 2.3pc the shares are no higher than they were eight days ago.
“The world of investment trusts can be a bit sleepy and sometimes investors don’t react to good news as quickly as you’d expect,” says Anthony Leatham of Peel Hunt, the Octopus trust’s “house broker”.
Readers, either at this column’s prompting or on the basis of their own monitoring of company announcements and share price moves, will sometimes be able to act more quickly and be in a position to reap the rewards when the rest of the market eventually catches up.
The planned rises in the dividend for both this year and 2022 are in line with inflation and, while the trust has no explicit commitment to raise its divis in line with the cost of living, it has said that about 53pc of its forecast revenues over the next 10 years are explicitly inflation linked.
Those revenues come from a range of green energy sources, diversified both geographically (it has assets in Britain, France, Finland and Poland, among others) and in terms of generation technology, with solar, onshore wind and offshore wind all represented in the portfolio.
While the vast majority of its assets are already operational and generating electricity, about 12pc of the portfolio is in the construction phase, although all such projects are expected to be completed by the end of September. A wind farm in France was completed late last year and another in Scotland was reported last month to be on track, which suggests we can be confident its remaining construction-phase projects will become operational on schedule.
Also reassuring is that the trust’s management company, Octopus Energy Generation, has been in business since 2010 and manages assets of a total value of £4.4bn.
Beyond the planned rise in the dividend, which incidentally the trust expects to be fully covered by earnings, we can see a further potential catalyst for a rise in the share price.
The 10.5pc planned dividend rise is larger than that proposed by rival green energy trusts (the highest targeted increase among rivals is 5pc), yet Octopus Renewables trades at a bigger discount: its share price is 11.7pc below its net asset value, whereas the discount on Bluefield Solar Income is just 0.1pc, that on NextEnergy Solar is 9.6pc, on JLEN Environmental Assets it is 2.4pc, on Renewables Infrastructure Group 2.6pc and on Greencoat UK Wind 4.5pc
“This targeted increase to the 2023 dividend [from Octopus Renewables] is one of the largest we have seen announced by the renewable generation peer group to date,” Peel Hunt said.
The final positive aspect of this trust is that its share price, like that of so many income-producing assets, has been dragged down by the effect of rising interest rates and bond yields, which make cash and bonds more attractive competition for savers’ money.
There are tentative signs that interest rates may be about to peak: the Governor of the Bank of England said last week that there was now more optimism about the prospects for inflation falling this year, while a poll of economists for the Reuters news agency this week predicted that rates would peak at 4.25pc, compared with 3.5pc now.
From every angle this trust’s share price looks too low.
Questor says: buy
Ticker: ORIT
Share price at close: 97.4p
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