Right now, three energy stocks are offering yields above 10%:

• Renewables Infrastructure Group (LSE:TRIG) at 10.5%.
• Greencoat UK Wind (LSE:UKW) at 10.2%.
• Ithaca Energy (LSE:ITH) at 10.1%.

But are these real income opportunities, or warning signs dressed up as windfalls? Let’s take a closer look.

The renewables pair: opportunity or value trap?

Renewables Infrastructure and Greencoat UK Wind are both London-listed renewable energy investment trusts. The former holds a diversified portfolio of wind, solar, and battery storage assets across the UK and Europe, while the latter specialises exclusively in British wind power.

The income case for both is genuinely compelling on paper.

Both have reaffirmed their 2026 dividend targets, with both also generating sufficient excess cash flow to fund the generous payouts to shareholders. After all, demand for electricity is only rising. And with the British government limiting oil & gas operations in the North Sea, demand from renewable generators is steadily ramping up.

But if that’s the case, then why are the yields so high? The honest answer is that both trusts trade at persistent, uncomfortable discounts to their net asset values.

There are quite a few forces driving this, including higher interest rates dragging down asset values and ramping up the pressure from leverage. But at the same time, stealthy changes to renewable subsidies have sparked significant uncertainty within the renewable energy sector, making most investors pretty cautious.

Buying today is definitely the contrarian stance. And it could prove quite lucrative, but if investor fears prove justified, then both renewable trusts could indeed be yield traps.

Ithaca Energy: high yield, high stakes

Ithaca Energy’s one of the largest oil & gas producers on the UK Continental Shelf, with stakes in six of the 10 largest fields, including a substantial interest in the giant Rosebank development in the North Sea.

The first quarter of 2026 was operationally strong. Average production of 126,000 barrels of oil equivalent per day came in despite severe weather in January and February. Underlying earnings reached $571m and net debt fell to $1.1bn, with available liquidity rising to $1.6bn.

As such, dividends weren’t only confirmed, but upgraded with over $500m now expected to be paid out. So why aren’t more investors taking advantage?

As previously mentioned, current UK energy policy’s unkind to North Sea operators, with massive windfall taxes levied against operators. Ithaca’s no exception. And the situation’s only made worse by a steadily rising production cost per barrel.

For now, the impact’s been manageable thanks to higher oil & gas prices. But if that changes, profits and, in turn, dividends could end up getting squeezed.

The bottom line on all three

All three businesses have committed to maintaining their currently massive yields… for now. But as already discussed, these enormous payouts come with enormous uncertainty and risk.

That’s why, personally, these dividend shares are not at the top of my Buy list. Instead, I’m far more interested in another dividend payer with a similarly juicy yield at a much lower risk.

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Zaven Boyrazian owns shares in Greencoat UK Wind.

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But many investors overlook the smaller FTSE 250, believing the more-domestically-focused index to be less reliable.

While that assumption isn’t entirely inaccurate, it does mean many investors miss out on some of the best income opportunities.

Despite the slightly smaller valuations, I often find some of the best British income stocks on the mid-cap index.

Let’s have a look at one top-quality share I think deserves a place in the FTSE 100 — and might soon secure that accolade.

The next big name in energy?

Up-and-coming oil and gas company Ithaca Energy (LSE: ITH) only listed on the London Stock Exchange (LSE) a few years ago. Yet in that short space of time its market-cap’s grown to £3.52bn — larger than some FTSE 100 constituents.

That puts it in good stead to join the blue-chip index in the next reshuffle.

In 2025, the company paid out 30.23c per share, equating to a yield above 10%. Usually, that kind of inflated yield would set off alarm bells, but Ithaca might just have what it takes to honour that commitment.

Recent Q1 2026 earnings show strong performance, with net income rising to £50m, up from £26.3m the prior quarter. Free cash flow now sits around £500m, a notable increase from just £197.1m in Q1 2025.

Admittedly, it doesn’t have much of a proven history to back its dividend payouts. That’s often where newer income stocks lose favour to more established names.

Also, energy’s a volatile industry — if profits slip, the dividend will almost certainly be cut down.

But that doesn’t mean it isn’t worth a closer look — after all, cash flow covers dividends three times and debt’s almost half its equity. So I see no reason to fear a dividend cut any time soon.

So what kind of income could a stock like Ithaca deliver?

Crunching the numbers

Ithaca shares are currently selling for around 213p a piece, so 1,000 shares would cost £2,130. That’s not exactly spare change, but it could deliver a serious lump of passive income. If the 10% yield holds, it would pay out £213 after just one year.

Reinvest those dividends for seven years, and it could compound to £4,252, paying out £414 a year. Now, not only have you almost doubled your money, but you’re bringing in enough spare cash for a decent weekend away.

Of course, these are just projections and much can change in a few years. But unlike many mid-caps, Ithaca has a clear roadmap backed by a reliable management team and solid fundamentals.

The bottom line

When picking income stocks, it’s comforting to opt for the risk-free, stable compounders we all love. And there’s certainly a well-earned place for them in any portfolio.

But if you hope to boost your income above the FTSE 100 average, stocks like Ithaca Energy are worth a closer look.

Yes, they may be riskier, but a closer look at the finer details sometimes reveals a hidden gem. Is Ithaca one of them? I think it might be, which is why I’ve moved it higher up on my watchlist for this year.

Should you invest £5,000 in Ithaca Energy Plc right now?

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Mark Hartley owns shares in HSBC, Legal & General and BP.

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This North Sea oil & gas producer is currently offering a staggeringly high 8.2% dividend yield, which isn’t only covered by cash flows but also has a surprisingly low payout ratio of just 58%.

With each share currently paying out 22.6p in dividends, if I were to buy 44,248 shares today, I could instantly start earning a seemingly secure £10,000 income stream. Sadly, I don’t have the £122,000 this trade would need. But there’s nothing stopping me from steadily buying shares over time to eventually build to this position.

The question is, is Ithaca actually a good investment? Or is the impressive yield too good to be true?

A North Sea powerhouse

Ithaca Energy’s one of the North Sea’s largest independent oil and gas operators, with a sprawling portfolio of producing assets across the UK Continental Shelf.

Following a transformative acquisition in 2024, the business now generates formidable cash flows. In 2025, underlying cash earnings hit $2.0bn, up from $1.4bn the previous year. And even after covering all its capital expenditures, there was still roughly $683m of free cash flow left to cover shareholder payouts.

As a result, gross dividends were hiked by 37.7% last year, from $363m to $500m, boosting the yield to 8.2% even with the share price more than doubling over the last 12 months. And now that oil & gas prices are once again on the rise due to the war in Iran, Ithaca’s profits and, in turn dividends, could once again be on track for an impressive 2026.

But make no mistake, there’s a reason why more investors aren’t taking advantage of this seemingly massive payout.

Why the risk is real

Every element of Ithaca’s cash generation is tied directly to the price of crude oil and natural gas. As previously mentioned, both of these commodities are currently climbing due to a global supply shock. But if the hostilities in the Middle East ease, today’s elevated prices could quickly reverse.

If Ithaca and other producers ramp up production too fast to take advantage of these higher prices, the supply shortage could suddenly flip to a supply glut, sending oil & gas earnings in the wrong direction.

At the same time, UK North Sea producers face specific structural challenges. The UK government’s Energy Profits Levy has meaningfully raised the effective tax rate for operators in the region, making future investment near impossible.

As such, the long-term production trajectory for Ithaca remains shrouded in uncertainty – the complete opposite of most mature dividend stocks.

So where does that leave investors today?

The bottom line

All things considered, Ithaca, while offering a lucrative income opportunity, doesn’t tickle my fancy. The core business appears to be well run. But with regulatory, geopolitical, and government headwinds pressuring the business, today’s impressive cash flows could quickly invert.

For more adventurous investors, there may be a unique opportunity here. But for my income portfolio, I think there are other more promising dividend stocks to consider.

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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.

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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.

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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.

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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.

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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.

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