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FTSE 250 stock Energean (LSE:ENOG) currently offers investors the third highest dividend yield in the index. The company continues to reward loyal shareholders without quarterly payments, yet the stock price has taken a hit. In fact, since May, the oil and gas producer has seen nearly a quarter of its market cap eliminated.
As a result, buying the shares today will lock in a 10.4% yield. And with production recently reaching record highs, this may be the end of the ice. But if so, why is the stock falling? And is this a buying opportunity or a falling knife when gains from dividends are wiped out by falling share prices?
The threat of war
From a performance standpoint, the Energean seems to be firing on all cylinders. However, investors are still worried about the location of these projects. Earlier this year, executives signed an agreement to sell Italian, Croatian, and Egyptian oil assets, concentrating the rest of their portfolio in a volatile area – off the coast of Israel.
As the conflict in the Middle East escalates, one of the group's leading oil fields – Karish – is at risk of being caught up in the conflict. In fact, it is already the target of a Hezbollah drone, according to the Israel Defense Force. If the situation continues, there is a high risk of production interruption if its oil vessels are targeted.
Management has taken action to reduce such risks internally. For example, workers are sent to oil tankers from Cyprus instead of Israel. And there are safety procedures in place should Energean be targeted.
However, it is not surprising to see investors being cautious and moving to less risky companies in the oil industry.
Opportunity to buy?
For investors who are comfortable with taking on more risk, Energean may be worth a closer look. So far, things are going well. The ongoing conflict is an undeniable disaster. But there may be an opportunity at the current low price.
As mentioned earlier, production in the first half of 2024 reached record highs. Subsequently, revenue for the period increased from $347.7m to $602.2m – a 73% jump! Operating profits followed suit, rising from $160.6m to $314.2m, comfortably subsidizing the company's dividend payout of $150.5m.
In other words, the stock's impressive yield looks like it may be here to stay. Currently, 40km offshore from Karish sits the Tanin offshore oil field. Combined, these assets are expected to provide sufficient supply for years to come. Therefore, without any sudden fall in commodity prices, Energean's business may be stopped from developing.
Of course, all of this is at risk if the ongoing war escalates. Personally, that's not a risk I'm willing to take right now, as there are similar growth opportunities in other industries with much lower risk profiles. Therefore, I do not plan to add any Energean shares to my portfolio today, despite the impressive dividend yield.
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