There are plenty of FTSE stocks offering investors juicy dividends. But looking out across the entire London Stock Exchange, it seems that Ithaca Energy (LSE:ITH) currently holds the crown for the most generous payout.
Shares are currently yielding 16.3% in dividends. And providing this can be maintained, investors could be looking at an exceptional opportunity to supplement their incomes.
So is this too good to be true? Let’s take a closer look.
The largest oil company nobody’s heard of
When thinking about the fossil fuel industry, most minds turn to sector titans like BP and Shell. However, it’s also filled with thousands of smaller players, each competing over limited resources. Ithaca is one of the largest of these independent enterprises. And it’s about to get even bigger following a deal signed with Eni, where Ithaca is buying almost all of its oil & gas assets.
What’s more, a new CEO appears to be on his way in. Luciano Vasques – the current managing director of Eni UK – will be taking the corner office. It’s not the first time he’s been in the hot seat, with an impressive résumé of executive positions at numerous Eni subsidiaries over the last 15 years.
Pairing rapid expansion with experienced leadership can be a recipe for success. And since the Eni deal puts the firm on track to produce 150,000 barrels of oil equivalents a day by the early 2030s, the group’s progressing on its long-term journey to become a new industry leader.
Is the yield sustainable?
While Ithaca’s long-term strategy appears to be on track, it still has to deal with short-term challenges. And right now, it’s paying out more in dividends than it’s actually earning.
The group’s promised to deliver $500m of shareholder dividends in 2024. As such, forecasts predict the dividend per share to land at around 25.7 cents. Yet the average consensus for earnings per share over this same period currently stands at just 15 cents. Obviously, that’s not sustainable in the long run, even with $285m of cash on the balance sheet.
At the same time, the newly elected Labour government outlined plans to increase windfall taxes on the oil & gas sector in its manifesto. And ex-chairman Gilad Myerson has also expressed concerns that Labour’s proposed policies could significantly undercut operations in the North Sea, the very place where Ithaca operates.
Suddenly, the group’s declining stock price starts to make a bit of sense. Over the last 12 months, shares have tumbled by 26%, driving the dividend yield up. It seems there’s a lot of uncertainty surrounding this business, most of which is out of management’s control.
In my opinion, that’s not an enticing investment proposal. Even more so considering there are other FTSE income stocks to pick from that are far less dependent on external factors.
