Could this be a rare opportunity to generate a huge dividend income stream? Or could it be a value trap? Let’s see.    

Which one?

Ithaca Energy (LSE:ITH) is a British oil and gas group with stakes in six of the 10 largest fields in the North Sea. In terms of reserves, it’s the largest operator. When considering production, it ranks second.

However, its sole focus is the UK Continental Shelf. This means all of its profit is taxed at an eye-watering 78%. In fact, a look at the group’s 2025 accounts shows an effective tax rate of 110%. But due to complicated rules surrounding the tax treatment of derivative contracts, tax breaks on capital expenditure, and the way in which decommissioning costs are accounted for, much of this is deferred to a later period.

Can it last?

Cash is, therefore, a better guide to the sustainability of the group’s dividend. In 2025, its payout was $498m out of free cash flow of $683m. Clearly, there’s some headroom here but not an enormous amount.

This could explain why during Ithaca Energy’s relatively short life as a public company – it listed in November 2022 – it has already cut its dividend. In cash terms, its 2025 declared payout is 23.7% lower than in 2023.

This is mainly due to the erratic nature of oil and gas prices, which makes the sector one of the riskiest in which to invest. Volatile earnings means the group’s dividend is likely to be difficult to predict as well.

It has a target of returning 20%–35% of post-tax cash flow from operations to shareholders. But the uncertain nature of Ithaca Energy’s business makes it hard to forecast from one period to the next what this actually means. Having said that, even a 50% cut in its dividend from its present level would still result in the stock offering an above-average yield.

Other threats to earnings include an unscheduled interruption to production and higher interest rates. Borrowing costs accounted for 24% of operating profit in 2025.

A growing market

Much to the disappointment of environmentalists, the demand for oil and gas is continuing to rise. And despite the move towards net zero, we will need hydrocarbons for decades to come.

Recent events in the Middle East have also revived the debate about whether the country should be drilling more. Nearly all opposition parties (the Green Party being a notable exception) are united in their view that the UK should be exploiting its own natural resources to help increase energy security.

In my opinion, income investors comfortable with the sector, could consider taking a position but I think it’s probably worth waiting. Hopefully, the current ceasefire in the Gulf will hold. If it does, energy prices are likely to fall. In these circumstances, Ithaca Energy’s share price is likely to come under pressure as well, pushing its yield higher still.

The post Is the 8.7% yield on this FTSE 250 stock too good to be true? appeared first on The Motley Fool UK.

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.

The post Is it time for me to buy this 11%-yielding FTSE dividend gem after a strong 2025 trading update? appeared first on The Motley Fool UK.

However, that doesn’t mean every high-yielder should be disregarded. A few sufficiently sustainable high-yielders can give an average return that little boost it needs.

Harbour Energy

With a dividend yield of 8.83%, Harbour Energy (LSE:HBR) immediately stands out for consideration for anyone seeking chunky passive income. With three consecutive years of dividend growth and cash coverage running at around 10 times the payout, the distributions are well supported by underlying cash generation.

A forward price-to-earnings (P/E) ratio of 7.8 also suggests the shares may be undervalued relative to expected earnings, providing a margin of safety and potential for growth alongside the income stream. For passive income investors, that mix of high yield/dividend growth and apparently cheap valuation is attractive.

However, earnings have slumped by over 300% year on year. While not entirely unusual for cyclical energy stocks, it’s still concerning. If cash is needed to fund operations or service debt, dividends could be cut.

Speedy Hire

Speedy Hire offers a dividend yield just under 8%, making it another potential candidate for investors prioritising income. The company has an impressive 36-year record of uninterrupted dividend payments, which indicates a strong cultural and strategic commitment to rewarding shareholders.

Dividends are currently covered 6.6 times by cash flow, suggesting plenty of room for the growth even in tougher trading conditions. That level of cash coverage helps offset concerns around present unprofitability and a negative return on equity (ROE) of about -7%. High debt also threatens the dividend if earnings deteriorate further.

Still, the combination of long-term payment consistency and strong cash backing makes it worth considering for passive income investors comfortable with turnaround risk.

Ithaca Energy

Ithaca Energy (LSE:ITH) looks appealing on several fronts for income seekers, not least its eye-catching 12% dividend yield. Revenue’s grown an impressive 63% year on year, showing the business is still expanding at the top line despite sector volatility. The share price has also climbed 46.8% over the past year, which signals improving market confidence and has already delivered solid total returns to existing shareholders.

In addition, the company sits on almost £2bn of equity. This gives it a sizeable capital base that can support ongoing operations and investment. Together, this makes it a potentially powerful passive income vehicle, with scope for high payouts and growth if momentum continues.

However, the company’s currently unprofitable. Management already cut the dividend by 47% last year as cash coverage tightened to around 2.5 times. If earnings don’t recover, further cuts are possible as the company prioritises balance sheet strength and reinvestment needs over shareholder distributions.

As a result, Ithaca may be one to think about for investors willing to accept elevated risk in exchange for a very high, but less certain, income stream.

The bottom line

For investors building a passive income portfolio for retirement, reliability’s key. I typically aim for yields in the 5%-7% range.

But being too conservative can lead to suboptimal returns in the long-run. Locking in and reinvesting meaty dividends when the opportunity arises can help supercharge portfolio growth through compounding.

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With a current 16% dividend yield, the North Sea energy operator looks like a veritable cash‑flow machine to me.

Recent acquisitions and a robust hedging programme appear supportive of its income. But strong tax headwinds remain.

So, how sustainable is Ithaca’s dividend engine, and how much passive income could it generate?

Dividend sustainability

In 2024, Ithaca paid a total dividend of 34 cents (25p), equating to a current yield of around 16%. Of course, dividend yields move inversely to share prices, so the payout can rise, fall, or hold steady.

An added complication is currency, as the exchange rate between the US dollar and sterling shifts constantly. While some firms — such as BP — fix a permanent sterling equivalent for each dividend, many others, including Ithaca, do not.

However, taking both share price and FX into account, analysts currently forecast Ithaca’s dividend yield at 12.3% in 2026 and 11.3% in 2027.

By comparison, the present FTSE 250 average is 3.5% and the FTSE 100’s 3.1%.

How does the core business look?

The powerhouse behind any firm’s dividends is earnings growth.

A key risk for Ithaca is the UK’s ‘Energy Profits Levy’ (EPL) — the ‘windfall tax’. Extended until 2030, it has lifted the effective tax rate on North Sea producers to around 78%.

Indeed, Ithaca’s 2024 results saw earnings before interest, taxes, depreciation, amortisation and exploration expenses falling 18.4% year on year to $1.405bn (£1.06bn). This was driven by lower oil and gas prices and reduced production.

But its net profit dropped 29% (to $153.2m), after a $351m tax payment, most of which was the EPL.

That said, Ithaca expects 2025 operating costs to remain in the low $20 per barrel of oil equivalent (boe) range. And it forecasts its oil and gas production will rise to a maximum 115,000 boe per day (kboe/d) from 105.5 kboe/d. This follows its $975.8m October acquisition of Italian oil and gas giant Eni’s UK assets.

Analysts forecast the firm’s earnings will grow by a standout 18.4% a year to end-2027. This should underpin ongoing high dividend yields.

High passive income generator

Investors considering a £20,000 stake in Ithaca would make £41,586 in dividends after 10 years. This is given the aforementioned caveats and using the most conservative forecast over the next three years.

This is based on the dividends being reinvested in the stock (‘dividend compounding’) and the 11.3% yield.

After 30 years on these twin bases, the dividends would rise to £563,982.

Including the £20,000 initial investment, the holding would be worth £583,982.

And this would pay an annual passive income of £65,990 at that point.

My investment view

The sheer effort of not buying this stock is giving me a pain behind the left eye. I have no idea what that means, but it cannot be good.

In any event, I will not succumb. I already have several energy firm holdings, and another would disrupt the risk-reward balance of my portfolio.

Nevertheless, for others without such a problem (the risk-reward balance, not the eye thing) I think the stock is well worth considering.

The post With its 16% dividend yield, is it time for me to buy this FTSE 250 passive income star? appeared first on The Motley Fool UK.

Taking advantage of opportunities

Even though the average yield is 3.51%, 16 stocks have yields above 8%. When looking to target a generous level of dividend income, an investor could consider high-yielding shares. This means that the actual amount of money invested would be less. For example, putting £100 in a stock yielding 9% would provide the same income as £300 in a stock yielding 3%.

However, it’s a balancing act between buying stocks with unsustainably high payouts and those that could offer income for years to come. There’s no perfect formula for this, but when a stock has a dividend yield above 10%, I always get a little sceptical.

I think it’s possible to build a diversified portfolio of FTSE 250 companies with an average yield of 8%. In this way, let’s assume someone put £600 a month in a selection of these stocks and reinvested the proceeds. By year 19, the pot could be worth £322,159, meaning an average monthly income of £1,247.

Of course, dividends aren’t guaranteed. Especially when looking years into the future, any projection needs to be taken with a pinch of salt. But it serves a purpose of giving a good indication of what could be done with discipline and regular investing.

A company on a growth mission

A key part of the strategy is selecting sound dividend shares with above-average yields. To this end, one to consider is Ithaca Energy (LSE:ITH). The stock is up 59% over the past year but still boasts a 7.98% dividend yield.

After acquiring Eni’s UK assets, it has been able to ramp up production and benefit from a lower operating cost base as it grows. For reference, Ithaca’s unit operating cost has fallen to $19.1 per barrel of oil equivalent (boe), in contrast to the $28.9 per boe this time last year.

Going forward, I think the larger resource base and opportunity to build out the reserves should help the company continue to scale up both in production levels and revenue. This bodes well for the dividend too. In the latest company update, it reaffirmed its targeted 2025 dividend of $500m. This equates to a 33% payout ratio, meaning that it’s not stretching cash too thin or paying out money it doesn’t have. In fact, it’s still maintaining $1.7bn of liquidity through bonds and credit facilities.

One risk is windfall taxes. This is because many of Ithaca’s assets are in the UK North Sea and are therefore subject to the UK’s fiscal regime. Even with this, I still think it’s an income stock worth considering.

The post How much do you need in a FTSE 250 portfolio to target £2,147 in monthly income? appeared first on The Motley Fool UK.

Some of this differential can be explained by share buybacks. So far in 2025, instead of returning cash directly to shareholders, members of the Footsie have spent £39bn buying their own shares.

Even so, those looking to boost their incomes — with cash in their hands — could consider taking a closer look at some of the highest-yielding FTSE 250 stocks.

A rising yield

One example is Ithaca Energy (LSE:ITH), the North Sea oil and gas producer, which has had a turbulent week.

Its shares fell heavily after its two of its largest shareholders — DKL Energy and Eni UK — announced on 2 September that they had sold 3% of the group to institutional investors at a 10% discount to the prevailing share price.

During the following four days, the share price tanked more than 18%.

For new investors, this means the stock’s yield has increased further. Already one of the best on the index, it’s now offering a return of 12.4%.

However, in its short existence (the group’s only been listed since November 2022) its dividend has proven to be erratic. This is typical of the energy sector where earnings can be volatile.

Helping to fix the nation’s finances

Another major problem for the group is that profits made in the North Sea are subject to an effective corporation tax rate of 78%. A windfall tax means the sector’s being heavily squeezed by the government.

The impact of this can be seen from Ithaca’s results for the six months ended 30 June. During this period, the group reported a profit before tax of $513m but its tax charge was an eye-watering $731m. This is a tax rate of 143%.

However, some of the charge includes deferred tax ($292m). This isn’t payable until a later date — possibly many years into the future — even though it’s shown to reduce this year’s post-tax earnings.

Fortunately for income hunters, the group remains cash generative. Although dividends are a distribution of a company’s profit to shareholders, they are paid using cash. So those wanting to understand how secure the group’s dividend is should take a look at its cash-generating potential. During the first six months of 2025, its operating cash flow was $1bn. This helped reduce its net debt by $214m.

And a series of acquisitions means the group’s production was 133% higher compared to the same period in 2024. Ithaca plans to return $500m to shareholders in respect of its 2025 financial year. And due to its “excellent operational performance” it recently announced that it’s going to bring forward the timing of its next two dividend payments.

The industry is lobbying hard to persuade the government to introduce an alternative to the energy profits levy. We will know in November whether the Chancellor is sympathetic. Until then, even with oil and gas prices at relatively low levels, Ithaca Energy appears to be doing well. It could be one for income investors to consider.

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That makes it the second-best performing stock on the FTSE 250 in 2025, just behind Chemring Group.

For investors chasing momentum and income, Ithaca may look irresistible. With an impressive 9.4% dividend yield and exposure to potentially rising oil prices, it certainly checks a few boxes. But dig a little deeper, and some cracks begin to show.

New kid on the block

Ithaca’s a relatively young name on the London market. Originally a Canadian company, it pivoted to the North Sea in the 2010s and has since become one of the largest independent producers in UK waters. The firm has grown quickly through acquisitions, most notably its takeover of Siccar Point Energy in 2022, and now plays a key role in Britain’s domestic energy strategy.

That said, the fundamentals tell a more complex story. Despite the recent share price rally, Ithaca’s financial performance has been heading in the wrong direction. Between 2022 and 2024, earnings collapsed from £837m to £119m, with net margins shrinking from 40% to just 7%. The company’s latest Q1 2025 results revealed a £210m loss, even though revenue jumped 48% compared to Q1 2024. 

This suggests rising costs, write-downs or operational challenges that aren’t visible in top-line growth alone.

There are also regulatory risks. Ithaca was recently fined £300,000 for a safety breach, raising questions about its operational discipline and governance. In an industry as tightly regulated as offshore oil and gas, safety lapses can quickly lead to reputational and financial damage.

A high yield — but little else

While Ithaca’s 9.4% yield sounds enticing, the payout ratio sits at an unsustainable 164%. Worse still, the dividend was almost halved between 2023 and 2024, and it has no track record of steady or growing payments. For anyone relying on passive income, that kind of volatility should be a major red flag.

Of course, there’s always the macroeconomic backdrop to consider. Oil prices have remained resilient in 2025, partly due to supply concerns stemming from ongoing Middle East conflicts. If prices spike further, Ithaca could benefit. But oil markets are notoriously volatile, and relying on geopolitical shocks to justify an investment rarely ends well.

My verdict? 

If I’d bought some Ithaca shares six months ago, I’d be more than happy with the returns. But from where I’m sitting now, the rising share price doesn’t reflect the company’s weakening fundamentals. 

The dividend, while generous on paper, lacks coverage and reliability. For me, this isn’t the kind of FTSE 250 stock I’d consider buying for reliable, long-term gains.

For income seekers, Greencoat UK Wind could be a more stable dividend stock to consider, supported by regulated assets and inflation-linked returns. It has clearer financial visibility, a better track record and less reliance on volatile commodity markets.

The post Up 70% with a 9.4% yield! Am I too late to get in on this rallying FTSE 250 stock? appeared first on The Motley Fool UK.

So what are the chances of that happening? And should investors be considering these under-the-radar stocks for their income portfolios?

Key players in the North Sea

Around 60% of Harbour Energy’s oil & gas production comes from the North Sea, while Ithaca operates entirely within this region. And in terms of production volume, Harbour has the upper hand, averaging 258,000 barrels of oil equivalents per day (Kboepd) versus Ithaca’s 80,200. Yet both firms are projecting these quantities to increase by the end of 2025.

If everything goes according to plan, Harbour’s output will almost double to between 450,000 and 475,000. At the same time, Ithaca is on track to hit 105,000-115,000. In both cases, this growth’s being driven by new assets that have recently been acquired. During September 2024, Harbour completed its $11.2bn deal to acquire Wintershall Dea, which is now set to contribute a full year of production. Then, a month later, Ithaca Energy executed its own £754m buyout of Eni UK’s oil & gas assets within the North Sea.

Obviously, the incoming surge of production volumes bodes well for cash flows and, in turn, dividends. But if that’s the case, why haven’t more investors been capitalising on the double-digit yields?

Digging deeper

Despite these businesses seemingly making solid operational progress, some key concerns are dampening investor sentiment. One of the biggest headwinds is the location of their operations. With the UK North Sea making up most, if not all, of their production output, profits are subject to the UK’s energy profits levy. And currently, that means these businesses are facing an estimated 78% effective tax rate on earnings – one of the highest in the world.

So even though production is on the rise, the benefit for shareholders is expected to be quite limited. Even more so, if oil prices take a tumble. The companies have already had to endure oil prices sliding from around $80 per barrel to $60 over the last 12 months. And should economic conditions worsen in the US, Goldman Sachs has predicted prices could fall further to $50 by December 2026 or even under $40 in the worst-case scenario.

Needless to say, market conditions are far from ideal for being a concentrated energy business right now. And with such high levels of external uncertainty, investors are understandably cautious about these businesses, myself included.

Both Harbour Energy and Ithaca Energy offer an exciting yield for investors building a second income stream through dividends. But whether that yield can be maintained in the coming years as regulatory and economic pressure mounts looks dubious in my eyes. Therefore, I think income investors may want to look elsewhere for winning opportunities.

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Currently, the North Sea energy giant has a dividend yield of 19%! This compares to the current average FTSE 250 yield of 3.4%.

That said, it is important to note that a stock’s yield changes as its share price and annual dividend alter.

In Ithaca’s case, consensus analysts’ forecasts are that its dividend will fall to 20.2p in 2025, 20.5p in 2026, and 17.3p in 2027.

Based on the £1.36 share price at the time of writing, these would give yields of 14.7%, 15.1%, and 12.7%.

So, should I finally buy it?

Key selection criteria

It also ticks my second box that requires a significant undervaluation in the share price. This reduces the chance of me making a loss if I sell it.

The next thing I want is a significant undervaluation present in the share price. This reduces the chance of my making a loss if I sell it.

A discounted cash flow valuation shows the oil firm is is 60% undervalued at its current £1.36 price. So the fair value of the stock is £3.40, is 60% undervalued at its current £1.36 price. So the fair value of the stock is £3.40, although market forces could move it lower or higher.

And the final element I expect to see is strong earnings growth. It is this that drives a stock’s dividend and price higher over the long term.

However, analysts forecast its earnings will grow by just 0.2% a year to the end of 2027.

Earnings growth

Ithaca’s 2024 results showed earnings before interest, taxes, depreciation, amortisation and exploration expenses declining 18.4% year on year to $1.405bn (£1.06bn). This was due to lower average oil and gas prices compared to 2023 and to lower production volumes.

In turn, its profit dropped 48% over the year to $153.3m. This was exacerbated by $351m paid in taxes, the majority of which was the Energy Profits Levy.

However, Ithaca expects its 2025 operating cost to stay in the low $20 per barrel of oil equivalent (boe) area. And it forecasts its oil and gas production will rise to a maximum 115,000 boe per day (kboe/d) from 105.5 kboe/d.

This is expected to come from its October $975.8m acquisition of Italian oil and gas giant Eni’s UK assets. A risk here for the firm is a failure to manage the transition of these assets optimally, which could push costs higher.

Will I buy the stock?

Overall, I would buy the stock today if I were even 10 years younger, just for the yield alone. It also looks very undervalued to me, so I might make a good profit on that too.

However, I am at the later stage of my investment cycle now, aged over 50. This means I avoid any stocks I think have a higher-than-average risk attached to them. And I think this is one of those.

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So let’s say an investor has £10,000 to spend. How much income could they unlock right now and in the future?

Profiting from higher yields

Today, the FTSE 100 offers an average yield just shy of 3.8%. Yet it’s actually the FTSE 250 offering the higher payout right now at almost 4%. So if an investor were to just snap up shares in a low-cost index tracker, a £10,000 investment could instantly start generating £400 a year.

Alternatively, instead of relying on an index fund, what if investors were to just split the £10,000 across the 10 highest-yielding income stocks in the FTSE 250? In that case, the dividend yield would average out to a massive 11.9%, or £1,190.

But that’s just right now. What if investors were to reinvest these dividends over time and grow the income portfolio? Assuming yields stay the same after:

• 5 years – £18,077 portfolio generating £2,151 passive income.
• 10 years – £32,678 portfolio generating £3,888 passive income.
• 20 years – £106,790 portfolio generating £12,708 passive income.

Let’s be realistic

There’s no denying that the prospect of using £10,000 to earn more than £10,000 every year in the long run is exciting. But there are some pretty large assumptions going into this calculation. Firstly, yields never stay the same since they’re affected by stock prices that change constantly (for better or worse).

What’s more, high yields are only attractive if the dividends can keep flowing. And across the top highest-yielding FTSE 250 stocks today, there are plenty of risks that could prevent that from happening. Take Ithaca Energy (LSE:ITH) as an example.

The oil & gas producer offers a 13.9% payout right now as its production efforts ramp up, beating analyst expectations in 2024. This momentum has seemingly spilt over into 2025, putting the firm on track to continue growing earnings and dividends despite recent weakness in oil & gas prices.

Dividends being backed by earnings is an encouraging sign. However, if that’s the case, why aren’t more investors taking advantage? There are undoubtedly several factors at play. However, one of the biggest concerns is the location of Ithaca’s operations.

With new development projects located in the North Sea, the company’s facing increasing political, legal, and activist pressure that could result in its long-term growth becoming compromised. And if earnings dry up, dividends are likely to follow.

The bottom line

There are a lot of passive income opportunities in the stock market right now, especially as prices tumble on fears of a global trade war. However, it’s essential for investors to do plenty of research when looking for stocks to buy, even among historically ‘safer’ dividend stocks.

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