As a fan of dividend shares, I was surprised to learn the FTSE 250 is currently yielding more than the FTSE 100. According to data from the London Stock Exchange, at 28 February, the yield of the UK’s second tier of listed companies was 3.44%, slightly above the Footsie’s 3.38%.

Based on amounts paid over the past 12 months, there are 27 stocks (10.8%) on the index that are presently yielding 7% or more. By contrast, there are only seven on the FTSE 100 offering this level of return.

But although the yield might be better, when it comes to growth, there’s a big variation in performance. From 1 March 2020 to 28 February 2025, the FTSE 100 (with dividends reinvested) increased by 59.9%. Over the same period, the FTSE 250 returned 20.3%.

A ray of sunshine

A disappointing share price performance is one reason why NextEnergy Solar Fund (LSE:NESF), which owns and operates solar PV and energy storage assets, has the second-highest yield on the FTSE 250. Since March 2020, it’s fallen 20%.

Based on its current stock price (21 March), it’s yielding 12.2%.Turn the clock back to September 2022, when the fund’s shares were at their five-year high, the yield was a more modest 5.9%.

However, in cash terms, its dividend is now 22% higher than it was for the year ended 31 March 2020. And with the demand for electricity continuing to rise, as long as the sun shines it should be able to continue to steadily grow its earnings and its dividend. In fact, since listing in 2014, it’s increased its payout every year.

The fund has 101 operating assets spread across the UK (around 85%) and Europe. These are enough to power over 300,000 homes for a year. At 30 September 2024, its portfolio had a remaining weighted asset life of 25 years. In my opinion, a steady stream of earnings therefore seems assured.

Future prospects

Because of what it does, I suspect NextEnergy Solar Fund is unlikely to deliver spectacular growth. Most of its revenue comes from long-term contracts and government subsidies. To increase its asset base significantly, it would probably need to borrow. As a result, its finance costs would rise, offsetting some of the additional income.

Encouragingly, the fund recently consolidated £205m of debt into one facility, at a lower rate of interest.

At the moment, the shares trade at a 28.4% discount to the fund’s net asset value. Although this is common for similar investment vehicles — valuing unquoted assets can be subjective — it’s bigger than average, which could suggest the recent sell-off has been overdone.

However, some of the differential could be explained by investor concerns. If interest rates stay higher for longer, earnings will be impacted. Also, despite increased investment in renewables, energy prices remain high. This could result in political pressure to cut subsidies.

It’s important to remember that dividends are never guaranteed. But with its focus on renewable energy — and its steady and reliable earnings stream — I think NextEnergy Solar Fund is well positioned to maintain its above-average payout. For this reason, I think it could make an excellent dividend share for income investors to consider.