Shares in FTSE 250 oil and gas company Ithaca Energy (LSE:ITH) are down 30% in the last 12 months. I’m intrigued. I see potential here for one of the biggest oil and gas opportunities of the last two decades.

I’m going to investigate in detail and with a critical eye. So let’s get into it.

Laughing all the way to the Rosebank

First things first. Ithaca Energy went public in November 2022 to exploit its acquisition of a 20% stake in Rosebank. This is one of the UK’s largest untapped oil fields. It’s located in the North Sea, 80 miles off the coast of the Shetland Islands.

If the name rings a bell, there’s a good reason.

Rishi Sunak’s Tory government gave Rosebank the long-awaited green light in September 2023. This approval came with some pretty massive public and media attention.

Rosebank was discovered in 2004. It’s only now, almost 20 years later, that work can begin.

That’s the type of risk and reward inherent in oil and gas discoveries.

What comes next

Ithaca Energy has a 20% non-operated stake in the Rosebank oil field. Non-operated means the company won’t do any of the drilling here.

The firm doing the work will be Equinor, which owns the other 80% stake. That’s Norway’s state-owned multinational oil and gas company. It’s worth around £79bn and has been operating since 1972.

With that kind of hard-won track record, it’s reasonable to assume it will be a useful partner.

Phase 1 drilling is slated to begin in 2026-27. So it will be at least five years before Ithaca starts to see the value of Rosebank come good.

It’s tough to say how much Rosebank may be worth to Ithaca. But a 20% stake is undeniably more valuable now the field can be drilled.

And the average dividend yield for FTSE 250 companies is around 4.7%. So a company paying three times that level may seem like a no-brainer.

Risk and reward

It’s always worth paying extra attention to the risks of investing in smaller UK companies.

That’s especially true when considering home-grown commodities or oil and gas stocks.

British investors have certainly been burned in the past. Some of us may recall the whole Sirius Minerals debacle. That was a UK-based fertiliser company that promised the earth but ended up crashing out of the FTSE 250, taking investor cash with it.

The comparison isn’t entirely fair though. Ithaca isn’t solely reliant on a project that’s not yet built. But my capital isn’t unlimited, so I must cast a critical eye over every opportunity.

Buy or pass?

Ithaca pulled in sales from its operated oil fields of £2.1bn last year. And £143m in cash on the balance sheet calms my nerves somewhat. Also, the company has halved its debt pile in the last two years. That suggests prudent management.

The company’s free cash flow is 10 times what it was in 2018. This indicates there’s material growth here.

And while revenue is forecast to dip slightly, analysts expect profits to rise from £372m this year to £396m in 2024.

I’m considering taking a position here, with the share price stabilised at around 155p.

The post This FTSE 250 stock pays 17% dividends! Is Ithaca Energy my next big buy? appeared first on The Twelfth Magpie.

More reading

• The £15bn defence splurge that could send UK shares soaring in July
• Up 446% in 12 months! What’s next for the Ceres Power share price?
• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Tom Rodgers has no position in any of the shares mentioned. 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.

With the ISA deadline not far off now, I’ve been thinking about dividend stocks to buy for my Stocks and Shares ISA. Putting dividend shares in this kind of investment account can be a very effective wealth-building strategy, as all income is tax-free.

Here, I’m going to highlight two dividend stocks that strike me as great ISA buys for the 2021/22 tax year. I think these stocks could help me generate some nice tax-free passive income in the years ahead.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

A renewable energy stock with a 5%+ yield

The first dividend stock I want to discuss is Renewables Infrastructure Group (LSE: TRIG). It’s a FTSE 250 investment company that owns a portfolio of wind and solar farms across Europe and the UK.

TRIG’s recent full-year results showed that the company is benefiting from the global shift to renewable energy. For the year, profit before tax amounted to £210m versus £100m in 2020. Meanwhile, earnings per ordinary share came in at 10p versus 5.9p a year earlier.

On the back of these results, the company declared a dividend of 6.76p for 2021 (2020: 6.73p), and announced a 2022 dividend target of 6.84p. At the current share price, the forecast 2022 payout equates to a prospective yield of around 5.3%, which is certainly attractive in today’s low-interest-rate environment.

Looking ahead, management was confident that the company can continue generating solid returns for investors. “The decarbonisation agenda remains central to public policy across Europe. Renewables play an essential role in providing affordable and clean electricity. This backdrop continues to ensure a bright outlook for the company,” said TRIG Chair Helen Mahy.

It’s worth pointing out that due to its investment company structure, TRIG sometimes needs to raise capital to fund growth. This can put pressure on the share price because it dilutes existing shareholders’ holdings.

I’m comfortable with this risk, however. I think that in the long run, this company is well placed to deliver attractive total returns.

Strong dividend growth

Another dividend stock I’d snap for my ISA this year is St. James’s Place (LSE: STJ). It’s a leading provider of wealth management services in the UK.

STJ’s recent full-year results for 2021 showed that the business is doing pretty well right now. For the period, underlying cash basic earnings per share amounted to 74.6p versus 49.6p a year earlier. This enabled the group to propose a final dividend of 40.41p per share, which took the full-year dividend to 51.96p versus 38.49p in 2020. At the current share price, that equates to a yield of about 4%.

Encouragingly, CEO Andrew Croft believes demand for the company’s wealth management services is likely to remain strong in the future. “Looking forward there is no doubt in my mind that the demand for face-to-face financial advice remains as strong as ever. In fact, as we emerge from the pandemic, I believe more people will be reassessing their life plans and be more likely to seek out a trusted adviser,” he said. This leads me to believe there’s potential for further dividend growth here.

The key risk with STJ, in my view, is further stock market weakness. This could impact the group’s revenues in the near term.

Overall, however, I’m quite bullish on this dividend payer. With the stock trading on a P/E ratio of about 18, I think it’s a good time to be building a position within my ISA.

The post 2 top dividend stocks to buy for an ISA this year appeared first on The Twelfth Magpie.

More reading

• 10% dividend yields! 3 dirt cheap stocks to consider in June?
• A dividend share yielding 10.2%! Should I buy before it’s too late?
• Here’s a dirt cheap FTSE 250 stock with a 10.3% dividend yield!

Edward Sheldon has no position in any of the shares mentioned. 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.

On its face, £250 doesn’t seem like enough to be worth investing. How much could it be worth in the long run? Even if a company pays a dividend as high as 13%, that would only generate £32.5 by the end of the year. However, I would argue that it’s exactly with these bits of spare cash, that successful small investors build large portfolios. Right now, I see two great companies that I would buy shares with if I had a spare £250.

Tobacco products

Tobacco companies are often an excellent source of passive income because they are extremely profitable businesses and frequently pay out large dividends. Manufacturing expenses are minimal and customers are also usually very loyal to their preferred brands.

There has been a shift in recent years. Smoking is generally on the decline, resulting in decreased cigarette sales, lower revenues and profits. To combat this, British American Tobacco (LSE: BATS) has made significant investments in next-generation products. So far, this has been costly since creating new brands costs money but non-cigarette revenue is growing and increased by 42% to £2bn last year. At the same time, higher pricing has helped the firm improve cigarette revenues by 4%.

Exchange rate fluctuations can also pose a danger to revenues and earnings, especially for a worldwide corporation like BAT. Moreover, tobacco stocks are not popular with many investors for ethical reasons, which may have an impact on the share price. However, the financial performance remains remarkable for the time being. Its yearly dividend has been boosted again, and it now yields 6.3%

Financial services

This possible addition to my portfolio is one of the few companies that did not suspend dividends during the early stages of the pandemic. That’s the kind of consistency that dividend investors should crave.

Legal and General (LSE: LGEN) currently issues a dividend yield of 6.5% and has made public its intentions to increase that yield in the future. There is no guarantee that this will happen of course. No company is under an obligation to pay a dividend of any sort. But it sets a good precedent and I doubt LNG would want to let down shareholders. The UK-based financial services provider has a large customer base and some good brand recognition to back up this potential shift.

There is a potential risk that newly-introduced rules on insurance renewal pricing could affect profits in the future. But these new rules could also create greater clarity for potential customers, leading to increased sales.

Holding dividend shares

Returning to the crux of the argument, £250 may not seem like much to invest, especially in UK dividend stocks. But I believe that making any small addition to my portfolio is a better use of my money than almost anything else. Roughly £16.20 in dividends at the end of the year may not seem like much. But if I continue to add small amounts of money to this portfolio over time, that pay-out will grow exponentially. Over 30 years that £250 investment would have earned me £487. Just imagine if I did this every month or every week!

The post 2 UK dividend stocks I’d invest a spare £250 in today appeared first on The Twelfth Magpie.

More reading

• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• Here’s why I bought this 7.6%-yielding FTSE 100 dividend stock instead of saving in a Cash ISA
• How much would you need in a Stocks and Shares ISA to match the State Pension?
• Here’s a quick and easy way to start earning passive income this summer with a spare £1,000

James Reynolds has no position in any of the shares mentioned. The Motley Fool UK has recommended British American Tobacco. 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.

Dividend stocks are getting a lot of attention right now. These are stocks that pay shareholders a cash income, out of company profits, on a regular basis.

Personally, I’m not surprised by the interest in dividend stocks as I think they can play a very valuable role within investment portfolios in the current financial environment. Here’s a look at four reasons I’d buy UK dividend shares for my own portfolio today.

Dividend stocks can provide protection

One big advantage of dividend stocks is that they tend to be less volatile than growth stocks. This means that they can potentially provide an element of portfolio stability.

We’ve certainly seen this in 2022. While plenty of high-growth stocks have fallen 30% or more this year in the recent market sell-off, a lot of dividend stocks have held up very well.

For example, one of my favourite UK dividend payers, Tritax Big Box REIT, is only down a few percent, year to date. By contrast, electric vehicle manufacturer NIO – which a lot of UK investors own – is down more than 25%.

Of course, dividend shares can still be volatile at times and payments can be cut, or even axed. However, in general, they tend to offer more stability than high-growth stocks.

Protection from inflation 

Another major attraction of dividend stocks is that they can provide inflation protection. They can do this in two ways.

Firstly, they can generate a return for investors (dividends) in the near term. When inflation is high, it’s better to get a near-term return than one in the future, because the return in the future is going to be worth less in today’s terms.

Secondly, rising yields (from companies raising their dividend payouts) can help offset inflation. One example of a company that just raised its dividend is alcoholic beverages company Diageo. In January, it said it would be increasing its dividend payout by 5%.

Two ways to profit 

A third advantage of dividend stocks is they can provide healthy investment returns. Right now, many UK dividend payers offer yields of 4%, or higher. That’s much better than the current interest rates offered on savings accounts. However, dividends are not the only source of return here. It’s also possible to generate capital gains from these shares.

The fact that these stocks offer two potential ways of generating a profit makes them very appealing, to my mind. It’s worth noting however, that dividends are never guaranteed, and it’s possible to lose money with dividend stocks.

Passive income potential 

Finally, investing in dividend stocks can be a great way to generate passive income – the ‘holy grail’ of personal finance. With these stocks, investors get paid regular cash income for doing absolutely nothing.

This means they can potentially provide financial freedom. By putting together a portfolio of high-quality UK dividend shares, investors can generate a passive income stream that grows every year.

Overall, there’s a lot to like about dividend stocks, especially in the current environment. Given their advantages, I plan to keep buying them for my portfolio in 2022, and beyond.

The post 4 reasons to invest in UK dividend stocks right now appeared first on The Twelfth Magpie.

More reading

• The £15bn defence splurge that could send UK shares soaring in July
• Up 446% in 12 months! What’s next for the Ceres Power share price?
• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Edward Sheldon owns shares in Diageo and Tritax Big Box REIT. The Motley Fool UK has recommended Diageo and Tritax Big Box REIT. 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.

Dividend investing

Dividend investing is one of the most popular ways to build passive income.

Dividends are payments taken from the company’s profits and given to shareholders. I love dividend payments because, unlike share price growth, this is cold hard cash which I can re-invest, creating a compounding feedback loop. Starting off with only £100 a month may not seem like much, but some companies, such as Imperial Brands, consistently pay more than 20p per share to their shareholders, multiple times a year. Just remember, a dividend payment can go up and down and there is no guarantee that the yield will be the same each year, or even made at all.

Yield

A dividend yield is a percentage representing the amount paid by a company over the year as it relates to its share price. For example, if a company pays a 50p dividend and its shares are worth £5.00 then the yield is 10%. It just so happens that many dividend yields are at all-time highs right now, so it’s not uncommon to see companies paying 10% or even 15%.

However, these high rates are very expensive for a company and can affect its ability to grow as a business over the long term. I personally would rather take a smaller average yield with a company that has a strong, growing business. Lloyds Bank has rewarded shareholders with an average of 3% over the last five years, with one special payment reaching 10%. In that time, the Lloyds share price remained relatively consistent, fluctuating mostly between the 50p and 70p before the Covid crash. 

It’s very tempting to balance out my portfolio with high-yield dividend companies. EVRAZ, a British mining company, paid 13% in 2017, 12% in 2018, nearly 14% in 2019, and 9.5% in 2020. Who wouldn’t want returns like that? But these high percentages can actually be misleading. EVRAZ’s share price fell 64% between June 2019 and March 2020, meaning that the actual amount paid to investors fell significantly.

A high yield isn’t always a bad sign, but it can indicate trouble with the business.

Flexible strategy

What’s great about this strategy is flexibility. When I have a lump sum, it can be tempting to invest it all at once. But no one knows what will happen in the stock market. It could shoot up or it could all crash tomorrow. Limiting myself to £100 a month means I am more able to adapt to those changes and take advantage of opportunities as they appear. And all the while, the portfolio I’m building will pay me increasingly larger amounts with which I can invest. It may not make me a millionaire, but by the time I retire I could have a significant nest egg supplementing my pension.

The post No savings? No problem. Here’s how I’m building passive income with just £100 a month appeared first on The Twelfth Magpie.

More reading

• The £15bn defence splurge that could send UK shares soaring in July
• Up 446% in 12 months! What’s next for the Ceres Power share price?
• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

James Reynolds has no position in any of the shares mentioned. The Motley Fool UK has recommended Imperial Brands and Lloyds Banking Group. 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.