A 12% yield? Here’s the dividend forecast for a hot income stock

Jon Smith considers a FTSE 250 income stock that has a clear dividend policy with the aim of paying out more, making it look attractive to him.

| More on:

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Income stocks provide a great way for me to get cash without having to be super active in my investment activity. Naturally, if I can find a way for my money to generate a higher yield, I’m always interested in hearing it.

Of course, stocks with a high yield or a large dividend forecast do need to be treated carefully, as they could be high risk. Yet here’s one that has caught my eye recently.

Strong dividend policy

Energean (LSE:ENOG) is an international hydrocarbon exploration and production company, with a focus on natural gas. It’s a FTSE 250 stock that has fallen by a modest 6% over the past year.

What interests me is the dividend payments. The firm has a current dividend policy of “targeting to pay cumulative dividends of at least $1bn by the end of 2025”. It paid out $107m in 2022 and $214m in 2023. So even without looking at analysts’ dividend forecasts, it’s clear that more dividend payments are coming this year and next in order to try and hit the $1bn mark.

The business feels confident in hitting this goal. In the latest report, it spoke about having predictable cashflows. It also mentioned that it’s “largely insulated from commodity price fluctuation, thanks to
long-term gas contracts”

As a result, even though the nature of the sector is quite high risk, Energean should be able to provide me with reliable dividends going forward. Granted, this does need close monitoring. For example, if the company underperforms massively in the coming year, it might have to change its dividend policy.

Adding in the numbers

At the moment, the firm pays quarterly dividends of $0.30 per share. Using the current share price, this equates to a dividend yield of 8.16%. This is high, but isn’t so ridiculously high that I think that it’s unsustainable.

The expectation is for this to be raised to $0.45 per share going forward and into 2025. A run of four of these payments would give a total dividend of $1.80 per share over a year. If I assume the share price stays where it currently is, this would raise the dividend yield to 12.2%.

The assumption that the share price will stay the same might not be accurate. It could be higher or lower than currently, which would change the overall yield. Yet I do have to use some kind of price to get an indication.

Risk but high reward

Energean is a profitable and growing business that has a clear dividend policy. This makes it attractive enough to me to consider buying some stock. I acknowledge the high yield does make it high risk, which is why I think I’m going to start by investing a relatively small amount.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Dividend Shares

Investing Articles

BAE Systems shares are flying! Have I missed the boat?

Sumayya Mansoor looks into whether or not BAE Systems shares are still a good buy for her portfolio after the…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

1 heavyweight FTSE 100 share I’d buy as London retakes its crown

Some Footsie firms are extremely large, but that doesn't mean they couldn't get even bigger. Here's one such FTSE 100…

Read more »

Investing Articles

I’d buy 5,127 National Grid shares to generate £250 of monthly passive income

With a dividend yield of 6.5%, Muhammad Cheema takes a look at how National Grid shares can generate a healthy…

Read more »

Investing Articles

The FTSE 100’s newest member looks like a no-brainer to me!

This Fool explains why she sees the newest member of the FTSE 100 as a great opportunity after its recent…

Read more »

Investing Articles

Empty Stocks and Shares ISA? Here’s how I’d start earning a second income from scratch

Like the thought of earning extra cash tax free? Our writer explains what he'd do to begin earning passive income…

Read more »

Investing Articles

Is Tesco’s share price still a bargain after rising 26% over a year?

Recent results show Tesco is still growing its leading market share, and despite its share price gains this year, it…

Read more »

Investing Articles

Here’s what the National Grid share price fall could mean for passive income investors

It's long been seen as one of the FTSE 100's best stocks for durable dividends. What does the recent National…

Read more »

Female florist with Down's syndrome working in small business
Investing Articles

£6,000 in savings? Here’s how I’d try to turn that into a £500 monthly passive income

With careful planning and patience, it’s not hard to earn a passive income with UK shares. Here’s one way to…

Read more »