Building a second income can be as simple as buying dividend shares. And luckily for UK investors, the London Stock Exchange is home to some of the most generous dividend shares in the world.

On the surface, the returns may not seem that attractive. After all, the FTSE 100 index is currently only paying out a yield of 3.11%. That means anyone throwing £10,000 into a passive index tracker can expect to make around £311 a year.

Yet, while the index as a whole isn’t the most enticing, the same can’t be said for some of its constituents. Take Ithaca Energy (LSE:ITH) as a perfect example.

Right now, the stock seemingly pays a massive yield of 8.77% – enough to generate £877 in annual dividends from the same £10,000 investment. But is this too good to be true? Or is it a golden opportunity hiding in plain sight?

What’s behind the enormous yield?

As a quick crash course, Ithaca extracts and sells oil & gas from offshore fields, primarily in the North Sea. It’s a commodity business to its core. But it’s also one that, when times are good, can generate excessive volumes of cash flow.

In 2026, that’s exactly what’s happening. With oil & gas prices soaring due to the war in the Middle East, operating cash flow across the first half of the year reached a staggering $954.6m. And while that’s down slightly year-on-year, it’s sufficient that management subsequently raised its full-year dividend guidance to $500m-$530m.

In other words, even at an 8.77% yield, the company’s financials are comfortably keeping up. And with Ithaca recently agreeing to buy new Canadian offshore assets to diversify away from the North Sea, the group’s total production volumes are expected to rise by 30,000 barrels per day on average by 2031.

That creates a real and powerful route for dividends to grow even further in the coming years. But if volumes are expected to climb and the company’s already a cash-generating machine, why aren’t more investors taking advantage?

What’s the catch?

We’ve already touched on the elephant in the room: oil & gas prices.

If the conflict in Iran comes to an end, there’s a real chance of a supply surplus that could tank commodity prices. After all, with companies like Ithaca scrambling to boost production volumes to take advantage of the price spikes, the overnight re-opening of the Strait of Hormuz could flip the balance from a global shortage to a supply glut.

Even when prices tumble, production costs remain the same. And as such, Ithaca’s cash flow margins could feel an enormous pinch without much warning, creating enormous binary risk – something that’s only made more contentious by the announcement of the CEO’s retirement in March next year.

So where does this leave investors?

The bottom line

Today, Ithaca’s enormous yield’s real and backed by cash flows. But commodity businesses are notoriously cyclical, and once the cycle turns, the yield could turn with it.

However, when the tide will shift is anyone’s best guess. And for investors looking to gain exposure to the oil & gas sector as part of a diversified portfolio, Ithaca could prove to be a lucrative opportunity worth investigating further.

And it’s not the only income opportunity I’ve spotted…

What income stock do we like better than Ithaca Energy Plc right now?

One of our Share Advisor analysts has just released a brand new stock report that we think is a must-read for any investor looking to try and generate potential income.

And the best bit is that you can see if for yourself, right now, absolutely free of charge!

No jargon. No hard sell. Just a clear look at an income share we think is worth your time.

Zaven Boyrazian does not hold any positions in the companies mentioned.