This renewable energy stock offers a whopping 13% yield.

A few years ago, there were no long-term giants BP again A shell were getting hammered, any renewable energy-oriented equity stock couldn’t put a foot wrong.

Today, things have changed. As climate targets fade daily, big oil is making a comeback. And money abandons the business of alternative energy.

At least, that’s how it looks when I look at dividend yields for others FTSE 250 investment companies. Today, I will look at the great harvest of the lot, NextEnergy Solar Fund (LSE: NESF).

High income

Here’s what the retailer’s forecasts look like over the next three years:

Those yields from NextEnergy Solar look good, but there’s a downside. They are so high in part because the stock price is down 30% year to date in 2024.

That shows weak investor confidence, and I can see several reasons.

Finance

The company develops and operates solar energy services in the UK and Europe. It is profitable, although it enjoys government support. What happens if and when that ends? That is dangerous.

Also, it’s a very expensive business. And NextEnergy Solar has significant operating debt.

In November’s interim figures, the company reported that the total was 48.2%. Its investment is 48.2% financed by debt, which I rate as far from ideal.

However, the update told us that we have “repositioned all revolving credit facilities in attractive locations that reflect the desire of the company’s banking partners to provide credit to the company on attractive terms.“

Dividend cover

In the interim period, the company has reported that it received a dividend cover of 1.5 times in the first six months of the year. It also spoke “Target profit cover of 1.1x-1.3x for the financial year ending 31 March 2025,” emphasizing its high yield.

The Board aims to “delivering reliable returns to shareholders through well-covered quarterly dividends derived from strong cash flows.“

These wishes are correct. But I get confused when I see a company focusing on its profit and talking about yield. It’s almost like it’s trying to talk about its share price.

And I really don’t rate 1.1 to 1.3 times cover as that good, especially if it falls. I see a potential danger in profit creation.

It’s not that important

On another valuation scale, shares of NextEnergy Solar may look very cheap.

The company set its net asset value (NAV) per ordinary share at 97.8p. That’s down from 104.7p on 31 March, but still well above the share price.

At the time of writing, NextEnergy shares are trading at 64.5p. That’s a 34% discount to NAV, which is huge. So, what is my bottom line?

I’m mixed

I like dividend yields, but I’m not sure about their sustainability. Credit looks bad, but I’m optimistic about future finances. I like the discount, but I’m not sure about the actual property value.

This can be a great long-term investment. But there is short-term risk, including potential financial stress. I need to dig deeper. Even if I get a high profit, it is not a bad thing for me.