New high-yield FTSE 100 stock to steal L&G’s crown

Legal & General Group (LSE:LGEN) is to lose its crown as top-yielding FTSE 100 income stock after projections for September’s blue-chip reshuffle showed a new oil and gas name alongside BP (LSE:BP.) and Shell (LSE:SHEL).

North Sea-focused Ithaca Energy  Ordinary Share (LSE:ITH) is valued at £4.4 billion, which if sustained by Tuesday night’s cut-off point should be enough to secure promotion from the FTSE 250 index.

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Ithaca’s entry to the blue-chip ranks would come with an annual yield of 9.6%, which compares with the 7.6% of Legal & General as the current leader of the FTSE 100 income plays.

Ithaca and takeover target eeasyJet (LSE:EZJ) are poised to replace the £3.4 billion-valued Ladbrokes owner Entain (LSE:ENT) and the 5% yielding housebuilder Persimmon (LSE:PSN), whose recent improvement in value to £3.8 billion places it neck-and-neck with Burberry Group (LSE:BRBY).

The result of the quarterly reshuffle will be announced by FTSE Russell after the market closes on Wednesday 2 September and take effect at the start of trading on Monday 21 September.

Ithaca only joined the FTSE 250 index in March 2023, having made its £2.5 billion stock market debut a few months earlier at a price of 250p.

This was followed by 2024’s transformative combination with Eni UK, which left Ithaca with stakes in six of the 10 largest fields in the UK Continental Shelf.

The shares have more than doubled from their November 2024 low point near to 100p, as the increased scale of operations and enhanced cash flows have supported both Ithaca’s growth aspirations and material distributions to shareholders.

Boosted by recent oil and gas prices, Ithaca raised its 2026 dividend guidance to between $500 million (£368 million) and $530 million at last week’s interim results.

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This includes plans for the 24 September payment of a half-year dividend of 15.42 US cents a share worth $255 million.

The range implies a distribution equivalent to 25-26% of the City’s $2 billion forecast for cash flow from operations (CFFO), compared with Ithaca’s recently increased target range of 20-35%.

City firm Berenberg sees scope for upside to the current 2026 guidance and assumes that subsequent distributions at the midpoint of the range would support an average yield of 7% to 2029, even after factoring lower European gas prices in 2028 and 2029.

It added: “In our view, Ithaca has the balance sheet capacity (before assuming any further M&A) to distribute at the top end of the range, which would deliver an average yield of just under 9% based on our CFFO forecasts.”

Berenberg yesterday increased its price target from 270p to 315p, which compares with today’s level of 265.6p.

Ithaca’s growth pipeline includes a 20% interest in the Rosebank field in the UK North Sea.

The project, which could begin production in the first half of 2027 depending on regulatory approval, is the largest undeveloped oil field in the UK North Sea.

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The Cambo project, which has the potential to meet 4.5% of the UK’s oil demand in 2035, is also advancing through key development milestones, while the company said it is continuing to invest in high-return, short-cycle opportunities across its producing assets.

It reported broadly flat underlying earnings of $1.1 billion in the recent half-year results, alongside an improvement in adjusted net debt to $1 billion.

Production guidance for the year remains 120,000-130,000 barrels of oil equivalent a day, having beaten the City consensus with 131,000 in the second quarter.