Income investors have had a difficult year as companies axed dividends to shore up their finances. FTSE 100 firms are expected to cut payouts by 25pc this year, but not all income streams have dried up.
The JLEN Environmental Assets investment trust has managed to ride out the storm without chopping its dividend. It currently yields an enticing 5.7pc.
Chris Tanner, the manager of the £640m trust, explains how it generates an income from “environmental assets” and why he believes the portfolio can keep delivering dividends despite economic turmoil.
Who is the fund for?
Investors looking to diversify their income sources while also owning something that has a positive impact on the environment.
Our income is generated by a unique set of environmentally friendly assets whose businesses are unaffected by broader economic and stock market trends. They are a great way to achieve a dependable income, paid out via quarterly dividends.
What’s your investment strategy?
We buy renewable energy infrastructure and businesses, such as solar and wind plants or anaerobic digestion (the breaking down of animal and food waste into gas) and biomass projects. These produce energy that is sold to the network. We also own companies involved in the treatment of water and waste.
We look for companies that use established technologies so there is little risk they will fail. They must make their income from reliable sources, such as government subsidies or fixed-price contracts linked to inflation. We have 32 holdings, all of which are private companies.
How do you generate an income?
Our energy assets make money by selling electricity or gas to the grid and taking subsidies from the Government.
For onshore wind, 50pc of revenues come from electricity and the rest comes from subsidies. This makes it very reliable. Solar parks have even more of their income from government subsidies, typically around 55pc.
More than 70pc of our income is linked to inflation. If inflation returns, as many predict, our dividends will rise with it.
The biggest risk is from lower renewable energy prices, which can fall as economic activity slows.
Government subsidies can be cut – but this is actually a good thing as it shows that what we own can stand on its own feet as a business.
Most of the subsidies we get now are locked in for a long time, so future government policies do not affect our income.