Investors can target £38,127 a year in dividend income from £20,000 in this ultra-high-yielding FTSE 250 gem – here’s how
FTSE 250 natural gas giant Energean (LSE: ENOG) currently generates a massive 9.9% dividend yield. This derives from its $1.20 (92p) dividend last year and the present share price of £9.31.
This far outstrips the FTSE 250âs 3.5% and the FTSE 100âs 3.1%. Indeed, there are very few shares of such quality that deliver such a return, in my view.
But is this dividend yield outperformance set to continue?
Whatâs the dividend yield outlook?
Consensus analystsâ forecasts are that the firm will pay a 92p equivalent dividend again this year, and next. In 2027 though, this is projected to increase to 95.4p. On the current share price, this means another two years of a 9.9% dividend yield, and then 10.2%!
These numbers are not rogue figures, incidentally. Energean paid the same $1.20 dividend in 2023, split into four 30-cent interim payments.
It has already made two interim payments of 30 cents this year, with two more expected.
Whatâs powering the dividends?
The engine of dividend (and share price) gains for any firm is growth in earnings. A risk to these for Energean is any sustained significant fall in natural gas pricing in the coming years.
However, analysts forecast that its earnings will grow by a strong 11.7% a year to end-2027.
This looks well-supported by its latest full year 2024 results, in my view. These showed strong operational growth, record production, and robust financials, underpinned by long-term gas contracts.
More specifically, revenue soared 25% year on year to $1.779bn. Earnings before interest, taxes, depreciation, depletion, amortisation, and exploration expense (EBITDAX) jumped by the same amount to $1.162bn. This is a version of EBITDA used by gas and oil firms to include specifics relating to exploration and development costs.
So how much dividend income can it make?
Investors considering a £20,000 stake in Energean would make £33,607 in dividends after 10 years. This is based on the current average 9.9% yield. It also factors in dividend compounding being used.
On the same twin bases, the dividend income would jump to £365,117 after 30 years. I see this as the end point of a standard 30-year investment cycle. It begins around 20 years of age and ends around 50, with plans for early retirement.
Including the initial £20,000 investment, the value of the holding would be £385,117 by then. And this would generate a yearly dividend income of £38,127 at that stage!
My investment view
I am seriously itching to buy this stock. Its strong growth prospects should underpin further gains in its already huge dividend yield. This should mean even greater dividend income streams in my retirement.
The only problem I have here is that I already have holdings in BP, Shell, and Harbour Energy. So another oil and gas firm added to my portfolio could unsettle its overall risk/reward balance.
I may be able to talk myself into it at some point though. I am looking at its share valuation, and a discounted cash flow valuation shows it is 71% undervalued at its current £9.31 price. This means its âfair valueâ is £32.10, which is not helping my self-control.
In any event, for investors without this problem, I think the stock is extremely well worth considering.
The post Investors can target £38,127 a year in dividend income from £20,000 in this ultra-high-yielding FTSE 250 gem â hereâs how appeared first on The Motley Fool UK.
Should you invest £1,000 in Energean Oil & Gas plc 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 Energean Oil & Gas plc made the list?
More reading
- I asked ChatGPT if we’re in an AI bubble that might crash the stock market and it saidâ¦
- If the FTSE crashes 20%, these are the 2 stocks I want to buy first
- Just over £11 now, is there any value left in National Gridâs share price?
- Down 24% in a month, I think this FTSE 100 stock has been oversold
- Time for me to buy more of this 61% undervalued FTSE heavyweight with a 6% forecast yield?
Simon Watkins has positions in Bp P.l.c., Harbour Energy Plc, and Shell Plc. 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.
