Should I buy Harbour Energy shares for their 7.8% dividend forecast?

Harbour Energy shares offer a high dividend forecast, and the company is past the high debts of its early days. And H1 results are just out.

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I know energy prices are high, but a 7.8% dividend forecast is still good for an oil company. And that’s what analysts have on the cards for Harbour Energy (LSE: HBR).

Harbour posted a first-half pre-tax profit of $0.4bn on 24 August. And it announced an interim dividend of 12 cents (9.4p) per share. Doubled for the full year, that would be bang in line with predictions.

The share price didn’t move much in response. But it’s down more than 40% in the past 12 months, so I think we might be looking at a top dividend buy now.

Life after merger

Harbour Energy has only been around since 2021, when it was formed from the merger of Premier Oil and Chrysaor Holdings.

Premier itself had a mixed history, and ended up suffering under a mountain of debt. Still, less than two years on, Harbour has paid down the debt it inherited.

Zero net debt at period end, reduced from $0.8bn at year-end 2022 and $2.9bn at completion of the Premier Oil merger in April 2021“, the update said.

As well as getting rid of the debt and paying high dividends, Harbour is engaged in a share buyback. It’s returned $160m of a planned $200m, so far.

Cash cow?

So we might just be looking at a long-term cash cow here?

One thing does concern me a little. That pre-tax profit turned into a loss of $8m after tax. The firm put it down to “a higher UK tax rate and one-off tax charges“.

It’s that windfall tax and all that. And as the bulk of Harbour’s revenue comes from North Sea oil, it really does suffer more from UK oil tax policy than many competitors.

The country’s heavy tax on companies like this should weigh on Harbour Energy until 2028.

Still, chief executive Linda Z Cook said: “We have also progressed our strategic investment opportunities outside of UK oil and gas – in Indonesia, in Mexico and in CCS.”

Outlook

For the full year, the company now expects production of between 185 and 195 kboepd. That’s a bit tighter than previous guidance of 185-200 kboepd.

Forecast free cash flow (after tax) remains at around $1bn. Net debt looks like creeping back a bit, to a forecast year-end level of around $0.2bn. But that’s not enough to concern me too much.

Time to buy?

Ever since I got it wrong with Tullow Oil some time ago, I’ve kept away from smaller oil companies like this.

Over the years, I’ve seen so many booms and busts, and I don’t have the skills to be confident of finding the winners. Commodity price risk, like that with oil, also leaves me cautious.

But I do think Harbour Energy shares look good value now. The dividend yield is very attractive, cash flow looks good (tax worries aside), and such low debt levels are unususal in this business.

For investors who are happy with the risks, Harbour just might be a good buy.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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