Oil & gas firm Ithaca Energy (LSE: ITH) offers one of the highest dividend yields in any FTSE index. This is because its price has been deeply discounted due to the regulatory risk attached to operating in the North Sea, in my view.
However, this reflects neither the company’s fundamentals nor its plans to keep working with the UK’s net zero policy. As such, I believe it is an overlooked high-yield gem. So what is the transition plan and what sort of returns are we looking at here?
The plan
Ithaca’s long-term aim for net zero by 2040 rests on three pillars. First it will cut emissions wherever possible, second it will transition to cleaner barrels and third it will offset the residual emissions that cannot be eliminated.
More specifically, it will reduce flaring (controlled burning) and upgrade equipment to reduce carbon dioxide emissions. Meanwhile, newer developments such as Rosebank and Cambo operate with lower carbon footprints than older North Sea assets.
Towards this end, Ithaca announced a tie-up with Italian oil giant Eni’s UK upstream business in 2024. The result is a larger operator better able to spread transition costs and invest more effectively in lower‑carbon-dioxide intensity developments.
How have the results been?
Ithaca’s 2024 results, released on 26 March 2025, showed a business already benefiting from the resultant scale of its transition. Annual production rose to 105.5 thousand barrels of oil equivalent per day (kboe/d), against 70.2 kboe/d in 2023.
Fourth‑quarter production hit 116 kboe/d, helping deliver adjusted earnings before interest, tax, depreciation, amortisation and exploration expense of $646m (£474m). This was a sharp step‑up from Q3’s $225.5m, reflecting Eni’s assets and lower unit operating costs of $14/boe compared to 2023’s $20.5/boe.
Total 2024 dividends reached $500m, matching guidance and signalling that cash generation remains strong even through the integration period.
The enlarged group also completed a $2.25bn refinancing, ending the year with more than $1bn of liquidity.This can be a powerful driver of growth and supports strong dividend payouts.
A risk here is a prolonged period of lower oil & gas prices that could squeeze its earnings. However, consensus analysts’ forecasts are that Ithaca’s earnings will grow an average of 18.9% a year to end-2028. And it is this that ultimately drives any firm’s dividends higher over the long run.
How much dividend income?
Given this, analysts project Ithaca’s dividend yield to be 11% this year. So investors considering a £20,000 holding could make £39,783 in dividends after 10 years and £514,162 after 30 years.
These figures are based on an 11% average dividend yield, although that could drop over the period. It also assumes the dividends are reinvested back into the stock to harness the turbocharging quality of dividend compounding.
At the end of that time, the value of the Ithaca holding would be £534,162. And this would deliver an annual dividend income of £58,758!
Given this, I am seriously considering selling one of my existing energy sector stocks (BP, SHEL, Harbour Energy) to buy Ithaca. Without doing that, the risk/reward balance of my portfolio would be unsettled.
I also think its high earnings growth potential — added to its big dividend yield — makes it well worth the attention of other investors.
