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Dividend shares stay plentiful even with the UK inventory market close to document highs. Within the FTSE 100 alone, 14 corporations presently provide yields above 5%. And the 5 largest payouts throughout the UK’s flagship index are:
- Ithaca Power (LSE:ITH) at 9.8%.
- Authorized & Common, 7.5%.
- LondonMetric Property, 7.2%.
- Land Securities Group, 6.7%
- Imperial Manufacturers, 6.6%.
These numbers might be mouth-watering inside an ISA. However as skilled buyers know, a excessive yield isn’t at all times an excellent signal. Don’t overlook yields go up when the inventory worth takes a tumble. And that always occurs when buyers anticipate monetary stress that would later end in a dividend reduce.
That’s why earlier than diving into any funding, it’s crucial to have a look at the underlying enterprise and see if the yield’s actually a possibility or a entice.
With that in thoughts, let’s take a more in-depth take a look at the index’s largest payer, Ithaca Power.
Exploring a good-looking payout
As a fast introduction, Ithaca’s an unbiased oil & gasoline producer, primarily working within the UK North Sea, however it has begun increasing into different areas via acquisitions.
Diving into its newest financials, the group’s efficiency throughout the primary half of 2026 was fairly spectacular. And within the second quarter of this yr, the corporate hit document manufacturing volumes of 131,000 barrels of oil equivalents per day (boepd), capitalising on the latest surge in fossil gasoline costs.
By way of cash, the ramp-up in manufacturing translated into a powerful $1.1bn influx of underlying earnings, and roughly $1bn of working money circulate. And past permitting web debt to drop by round $300m, this surge in money additionally translated into a big improve in full-year dividend expectations.
Initially, Ithaca was aiming to pay between $470m and $520m to shareholders. However with a payout coverage that states 30% of post-tax working money flows are redistributed, the corporate’s now on observe to ship $500m- $530m.
What’s extra, this might be simply the tip of the iceberg. Its highly-anticipated Rosebank undertaking might doubtlessly start energetic manufacturing subsequent yr, whereas administration has concurrently agreed to accumulate Suncor Power’s Canadian offshore property for $860m. The latter not solely provides an estimated 30,000 boepd from 2027, but in addition helps diversify operations exterior of the North Sea.
Evidently, this all sounds fairly thrilling. But when the numbers are good, why then’s the yield so excessive?
Understanding the regulatory headache
The diversification into Canada is extra necessary than it may appear at first look. Why? As a result of working within the North Sea is a punishing expertise.
Past having to barter with a authorities hostile to future oil & gasoline drilling, the UK’s Power Income Levy locations the headline tax fee on its earnings at an eye-watering 78%! And whereas this levy does technically expire in March 2030, it’s necessary to focus on that it has already been prolonged.
This threat additionally applies to Rosebank. Whereas Ithaca’s making good progress in getting the location prepared, it nonetheless wants recent consent from regulators. And if the approvals are delayed or just refused, it might considerably rerail the agency’s present spectacular trajectory.
This binary-like threat is a giant motive why the yield’s so excessive. So whereas I feel there’s an actual alternative to discover right here, it’s no denying there’s additionally a considerable factor of threat that buyers want to contemplate fastidiously. Fortunately, there are many different high-yield dividend shares on my radar at this time, together with…
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Zaven Boyrazian owns shares in LondonMetric Property.
