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There are only a few dividend shares which have a double digit proportion annual yield, not to mention one standing at 25%. One London dividend share has a yield that prime – and has introduced dividend plans that might see the entire shareholder payout develop even additional!
Is that this too good to be true?
Excessive-yield oil and gasoline firm
The share is Ithaca Vitality (LSE: ITH). Whereas the corporate won’t be a widely known title, it’s no minnow. The FTSE 250 agency instructions a £1.3bn market capitalisation.
It introduced its half-year outcomes at this time (22 August) – with some doubtlessly cheering information for revenue traders. Alternatively, the monetary outcomes had been one thing of a combined bag, in my opinion.
Doubtlessly good dividend information
As an investor, a 25% yield is a giant purple flag for me. Such an abnormally excessive yield can recommend the Metropolis doubts an organization’s means to take care of its dividend on the present stage and has marked down the share value accordingly.
The Metropolis could be flawed although. Ithaca has been listed for a number of years and final yr noticed its maiden dividend funds. So presumably traders are nonetheless deciding how finest to worth the agency.
In its half-year outcomes, the power firm declared its first interim dividend for this yr. It reiterated its dividend dedication for this and subsequent yr (although such a “commitment” could be undone on the subject of future dividends… they’re by no means assured in actuality).
Ithaca additionally stated that it has “ambition for special dividends to increase total distributions to up to $500 million per annum”.
Grounds for warning
That might equate to round 29% of the present market capitalisation. In different phrases, if Ithaca delivers on its ambition, the dividend share’s already supercharged yield might transfer greater nonetheless.
However the outcomes contained some warning indicators of a enterprise transferring within the flawed course. In comparison with the identical six-month interval final yr, statutory web revenue fell 34% and web money stream from working actions was down 19%. Complete manufacturing fell sharply too.
It was not all unhealthy. The corporate lowered its web debt by 28%, although at over half a billion kilos it stays substantial.
Strengths, however dangers too
Ithaca has a confirmed enterprise technique of exploiting North Sea oil and gasoline property which have more and more fallen out of trend with the massive oil majors. It has scale, is worthwhile and is strongly money generative.
However power costs are risky, posing a threat to future money flows. Ageing property can incur sizeable upkeep price, whereas I see a threat of accelerating tax and regulatory burdens consuming into the profitability of producers within the British sector of the North Sea.
The corporate’s massive majority shareholder might successfully determine to alter its dividend coverage for its personal causes, which although completely authentic makes me queasy as a small personal investor.
Ithaca would possibly handle to take care of its mammoth dividend for years to return. However the yield right here finally appears too good to be true on a long-term foundation, so far as I’m involved. So I cannot be investing.
