A 10% dividend yield but down 26%, is this FTSE stock now a major bargain?

This high-dividend-yield FTSE 250 stock delivered record-breaking results, but its shares keep dropping. Is this a powerful buying opportunity for me?

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FTSE 250 stock Energean (LSE:ENOG) currently offers investors the third-highest dividend yield in the index. The firm continues to reward loyal shareholders without quarterly payouts, yet the stock price has taken quite a hit. In fact, since May, the oil & gas producer has seen close to a quarter of its market cap wiped out.

Created with Highcharts 11.4.3Energean Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

As a result, buying shares today would lock in a 10.4% yield. And since production recently hit record highs, this may just be the tip of the iceberg. But if that’s the case, why is the stock tumbling? And is this a buying opportunity or a falling knife where gains from dividends are wiped out by share price falls?

The threat of war

From an operational standpoint, Energean seems to be firing on all cylinders. Yet investors remain concerned due to the location of these operations. Earlier this year, management signed a deal to sell its Italian, Croatian, and Egyptian fossil fuel assets, concentrating its remaining portfolio to a rather volatile location – namely off the coast of Israul.

Should you invest £1,000 in Energean Oil & Gas Plc right now?

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With the conflict in the Middle East ramping up, one of the group’s flagship oil fields – Karish – is at risk of getting caught in the crossfire. In fact, it’s already been the target of a Hezbollah drone, according to the Israel Defence Force. Should the situation escalate further, there’s a serious risk of production disruption if its oil vessels are targeted.

Management has taken action to mitigate such risks internally. For example, workers are being transferred to oil vessels from Cyprus rather than Israel. And there are safety procedures in place should Energean be targeted.

Nevertheless, it’s not surprising to see investors being cautious and moving to lower-risk companies in the fossil fuel industry.

A buying opportunity?

For investors comfortable with taking on more risk, Energean could be worth a closer look. So far, things are still running smoothly. The ongoing conflict is an undeniable tragedy. But there may be an opportunity in the current low price.

As previously mentioned, production in the first half of 2024 reached record highs. Subsequently, revenue for the period skyrocketed from $347.7m to $602.2m – a 73% jump! Operating profits followed suit, climbing from $160.6m to $314.2m, comfortably funding the firm’s $150.5m dividend payments.

In other words, the stock’s impressive dividend yield looks like it could be here to stay. In the meantime, 40km along the sea from Karish sits the Tanin offshore oil field. Combined, these assets are expected to provide ample supply for years to come. So, barring any sudden collapse of commodity prices, Energean’s business may be set to thrive.

Of course, all of this becomes moot if the ongoing war escalates. Personally, that’s not a risk I’m willing to take right now, given there are other similar growth opportunities in other industries with far lower risk profiles. Therefore, I’m not planning on adding any Energean shares to my income portfolio today, despite the impressive dividend yield.

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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.

Zaven Boyrazian 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.

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