Stock market

2 cheap FTSE 250 shares I’ll buy in June for passive income of £2,020!

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gave FTSE 250 It has climbed 5% since the start of the two quarters. Yet despite these healthy gains, many of the top UK shares in the index still look mega-cheap.

Today I am looking for low cost shares that can help me generate another fantastic income. The following two have popped up on my radar.

FTSE 250 stocks Forward P/E ratio Forward dividend yield
Bluefield Solar Income Fund (LSE:BSIF) 9.1 times 8.5%
Next Energy Solar Income (LSE:NESF) 10.9 times 11.6%

£2,020 passive income

Profits are never guaranteed. But if the broker’s predictions prove correct, an investment of £20,000 spread across the two companies could earn me passive income of £2,020 this year.

I believe these companies will do well even on current dividend forecasts. I also think there is a very good chance that they will increase their profits over time. Here’s why.

Brilliantly cheap

I believe the NextEnergy Solar Fund could be one of the best cheap dividend stocks today.

It has a very low price-to-earnings (P/E) ratio and a dividend yield of around 12%, one of the largest on the FTSE 250. At 72p per share, the renewable energy stock trades at a 30%+ discount. Its estimated net asset value (NAV) per share, 104p.

Investors are often wary of stocks with such huge dividend yields. They may signal that the dividend may not be sustainable over time, or even that the payout may be cut.

I don’t think this is the case with NextEnergy. The green power giant has been offering market-beating yields since its IPO in 2014, backed by steady dividend growth over the period.

This is largely thanks to the company’s highly defensive operations. The energy it produces and then sells remains stable throughout the economic cycle, which means it has the revenue and cash flow to provide a large and growing return over time.

Increase in profits from 2020

The year 2020 2021 2022 2023 2024
Dividend per share 6.87 p 7.05 p 7.16 p 7.52 p 8.35 p.m

On the downside, building and operating solar farms is an expensive business. And costs are rising, putting increasing pressure on revenue forecasts.

But on balance, I think NextEnergy’s other features offset that risk. And I expect demand for low-carbon energy to grow to keep its profits high.

Another dividend deal

This is why I will buy shares of Bluefield Solar Income Fund for my portfolio.

The FTSE 250 operator – after a drop in profits during the Covid-19 crisis – has recently accelerated payout growth.

And like NextEnergy Solar’s income, Citi analysts expect profits at Bluefield to continue growing over the next two years.

Dividend increase from 2019

The year 2019 2020 2021 2022 2023
Dividend per share 8.31 p 7.9 p 8.0p 8.2 p 8.6 p

Earnings on renewable energy stocks have been reduced by high interest rates. And that’s a risk given the signs of tighter inflation in recent months.

But I believe this is reflected in the extremely low prices of both companies. At 105.6p per share, Bluefield also trades at a sweet discount to its NAV of 133.1p per share. It currently stands at 21%, a bargain in my book.

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