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Having been a listed company for less than four years, it’s a remarkable achievement for Ithaca Energy’s (LSE:ITH) shares to be listed alongside the UK’s biggest and best.
But the oil and gas producer’s rapid promotion to the FTSE 100 isn’t the only reason why the stock’s causing a bit of a stir. Let me explain.
Good for income
In its short life, the stock’s earned a reputation for being one of the best dividend payers around. In fact, it’s now (3 November) the highest-yielding on the Footsie.
Over the past three years, it’s paid the following amounts:
- 2023 – 39.60 cents ($399.6m)
- 2024 – 34.04 cents ($498.4m)
- 2025 – 30.23 cents ($498.4m)
So far in 2026, it’s declared an interim amount of 15.42 cents. This cost $255m when it was paid on 24 September.
For the full year, it’s now targetting $500m-$530m. With oil and gas prices soaring as a result of the ongoing Middle East stand-off, this has recently been upgraded. Previously, it was aiming for $470m-$520m.
If achieved, it means its total payout could be between 30.24 cents (22.78p) and 32.05 cents (24.14p) implying a forward yield of 7.7%-8.2%. However, this will change with currency movements.
No guarantees
But like any business, there are threats to its dividend. It should be noted that despite consistently offering an above-average yield, its payout per share was cut in 2024 and 2025.
In particular, falling energy prices would signficantly reduce the group’s earnings and, potentially, lead to a cut. Ithaca Energy can do little to control its level of earnings. Yes, it can try and produce more — the government’s recent approval of drilling at Rosebank in which the group has a 20% interest will help.
But ultimately, the price it achieves for its output will have the biggest impact on its bottom line.
Today, a barrel of Brent crude costs $117. At the end of February, oil was selling for $72. In my opinion, when ships move freely through the Strait of Hormuz again, there’s likely to be a big drop in oil and gas prices.
The group’s also heavily exposed to the UK where it’s taxed at 78%. However, the group recently announced a “transformational” deal to acquire some oil assets off the east coast of Canada for $860m plus potential deferred consideration of up to $250m. From the middle of 2027, this will help reduce its reliance on the North Sea.
This acquisition marks the next era of growth for Ithaca Energy as we make our inaugural international acquisition in Offshore East Coast Canada. The Transaction delivers on our clear stated growth strategy as we seek to diversify and grow our production and resource base and replicate our success in the United Kingdom Continental Shelf… through disciplined international expansion in regions [where] we believe we can create long-term value for our shareholders.
Ithaca Energy executive chairman Yaniv Friedman
My view
Although I can see the attraction of its dividend, I suspect the group’s share price won’t remain at its current level for much longer. After all, surely it’s in everybody’s interests for the Middle East conflict to be resolved soon?
On this basis, I think it would be better to review the investment case in a few months. Until then, there are another opportunities on my radar…
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James Beard does not hold any positions in the companies mentioned.
This story originally appeared on Motley Fool
