A 10% dividend yield from a FTSE 250 stock with a forward P/E of 5.6!

This oil & gas enterprise is firing on all cylinders and rewarding shareholders with a double-digit dividend yield! Is this too good to be true?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

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.

This FTSE 250 stock’s reaping an enormous dividend yield, thanks to its depressed share price. Energean‘s (LSE:ENOG) currently rewarding shareholders with a chunky 10% payout that’s been rising since 2022. Yet, over the same period, the stock price has fallen by over 30%. And as a result, its forward price-to-earnings ratio sits at a dirt cheap-looking 5.6.

Is this a screaming Buy opportunity to consider? Or is there something else going on?

Digging into the details

As a quick reminder, Energean’s an oil & gas producer. It’s currently on track to hit average daily production of 150-155 thousand barrels of oil equivalents (kboe/d) by the end of 2024. That pales in comparison to industry titans like Shell or BP. But it’s a significant increase compared to the average 123 kboe/d produced in 2023.

Should you invest £1,000 in Rigetti Computing right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Rigetti Computing made the list?

See the 6 stocks

Pairing this increased volume with rising natural gas prices has put the firm on a rising trajectory. In fact, looking at its latest third-quarter earnings report, Energean’s already delivered 35% revenue growth along with a 44% jump in underlying earnings. And this momentum’s expected to continue throughout the rest of the year.

Normally, this sort of performance would spark a positive reaction from investors. Even more so, given growth doesn’t appear to be slowing any time soon. So why is the share price falling?

Geopolitical risk

There’s no denying that Energean’s operations are currently firing on all cylinders. However, what seems to be holding the stock back is the location of these operations. Almost all of its extraction activities are off the coast of Israel. And that’s a warzone.

Since the conflict began, the company hasn’t suffered any disruption to daily operations. That’s despite its flagship floating production storage & offloading (FPSO) vessel being targeted by a suspected Hezbollah drone shot down by the Israeli Navy earlier this year.

Management has safety procedures in place to evacuate staff should the worst come to pass. However, should a prolonged disruption to operations occur, earnings will likely take a significant hit, along with dividends.

In other words, there’s a chance of a potential earnings collapse that’s almost entirely out of management’s control. With that in mind, it’s not surprising to see the share price struggle. After all, investors hate uncertainty.

A buying opportunity?

Investing in a commodity-driven business at a significant discount is a pretty rare opportunity, especially for a firm as established as Energean. And should the conflict come to an end, the stock’s likely to surge as the uncertainty of disruption evaporates.

In other words, investors could permanently lock in a double-digit dividend yield along with chunky capital gains. And when combined with a relatively healthy balance sheet, this certainly starts to sound like a buying opportunity in my mind.

However, this ultimately comes down to a question of risk versus reward. For my portfolio, I already have sufficient exposure to the energy sector. However, for investors comfortable with taking on some extra risk, Energean’s impressive dividend yield may be worth considering.

Of course, there are plenty of other passive income opportunities to explore. And these may be even more lucrative:

We think earning passive income has never been easier

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

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.

More on Investing Articles

Investing Articles

Up 30% in weeks, does the BAE Systems share price still offer value?

The BAE Systems share price has been on a tear over the past couple of months. This writer sees limited…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Hunting for shares to buy as the market trembles? Remember this!

After a choppy week in global stock markets, our writer goes back to basics in his hunt for bargain shares…

Read more »

Investing Articles

3 simple principles to help build wealth in an ISA

As a new tax year opens up new ISA allowances for many investors, our writer shares a trio of things…

Read more »

Investing Articles

US trade tariffs: what they could mean for UK shares like Ashtead, Compass Group, and Experian

US trade tariffs continue to rock global markets, and the UK is no exception. Our writer considers how a new…

Read more »

Mindful young woman breathing out with closed eyes, calming down in stressful situation, working on computer in modern kitchen.
Dividend Shares

The Trump slump has smashed these FTSE 100 shares!

After a rough week for US and UK shares, investors have been shaken. But now these FTSE 100 stocks have…

Read more »

Investing Articles

£10,000 invested in Rolls-Royce shares 5 years ago is now worth…

Rolls-Royce shares have been on fire since April 2020. Part of this is the result of pandemic restrictions lifting, but…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

£10,000 invested in Tesla stock at its peak in 2024 is now worth…

Over the last few months, Tesla stock has lost nearly half its value. Here, Edward Sheldon explores a few takeaways…

Read more »

Investing Articles

Is the S&P 500 heading for an epic stock market crash?

Our writer shares his thoughts on a very crazy time for the S&P 500 and the wider stock market. How…

Read more »