With an 8% yield, is the second-largest FTSE 250 stock worth considering?

Our writer considers the value of the second-largest stock on the FTSE 250 with a £4bn market cap and a dividend yield of 8%.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Harbour Energy (LSE: HBR) is a FTSE 250 oil and gas company based in London. With a £4bn market cap, it’s not only the second-largest on the index but also currently larger than the 10 smallest on the FTSE 100. Consequently, it main rejoin the main index in the next reshuffle.

It got demoted from the FTSE 100 in late 2022 after its market cap collapsed below £3bn. However, it catapulted back above £4bn again in early September last year after finalising the acquisition of the upstream assets of German oil and gas producer Wintershall Dea.

The acquisition represents a significant expansion for the company, pushing production up to 475,000 barrels of oil equivalent per day (boepd). According to a press release, it’s now “one of the world’s largest and most geographically diverse independent oil and gas companies.”

Should you invest £1,000 in Harbour Energy Plc right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Harbour Energy Plc made the list?

See the 6 stocks

Created with Highcharts 11.4.3Harbour Energy Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

Assessing viability

Harbour certainly seems to be enthusiastically expanding its business but oil and gas is a tough industry. Prospecting for new wells can be expensive and at times, can yield no returns. Many independent companies experience long periods of losses and mounting debt with no guarantee of a recovery.

When assessing oil and gas companies, it’s important to consider how many years of reserves they hold. The potential value of an as-yet untapped reserve depends on its commercial viability.

Successful explorations amount to assets on the balance sheet and then slowly decrease as they are depleted. As incoming cash is used to fund new explorations, the company can quickly fall back into a low valuation.

Thus, accurately assessing the investment viability of an oil and gas company can prove difficult. This is often made most evident by a wildly fluctuating price-to-earnings (P/E) ratio.

Value and dividends

Harbour Energy P/E ratio
TradingView.com

In the graph above, we can see how Harbour’s trailing P/E ratio has moved in a range between -18 and +105 over the past few years.

Currently, it’s positive and sits around 28, which looks expensive for investors considering it now. But the recent boost in production means earnings are forecast to improve significantly, so it has a forward P/E ratio of only 10.

That means the current share price of 277p could be very cheap, prompting analysts to forecast an average 12-month price target of 370p — a 33% increase!

An extra 8% in dividends on top of that would be the cherry on top. But with almost no track record of payments, it’s impossible to say whether its dividends are reliable.

With no steady or consistent cash flow, energy companies can be unreliable when it comes to dividends. Last year, for instance, Diversified Energy Company slashed its dividend and the yield fell from 15% to 7.2%.

Subsequently, I wouldn’t factor in the dividend when assessing the long-term value of Harbour.

Further advancements

But in December 2024, Harbour enjoyed further good news. In cooperation with partner Ithaca Energy, it discovered hydrocarbons in the Jocelyn South prospect in the North Sea. Of course, while the discovery is promising, the commercial viability of it still needs to be evaluated. As ever, there’s a risk it could cost a lot and amount to little.

While Harbour’s developments seem promising, I don’t plan to buy it today. However, it may be worth considering for risk-tolerant investors keen on emerging energy stocks.

Should you buy Harbour Energy Plc shares today?

Before you decide, please take a moment to review this first.

Because my colleague Mark Rogers – The Motley Fool UK’s Director of Investing – has released this special report.

It’s called ‘5 Stocks for Trying to Build Wealth After 50’.

And it’s yours, free.

Of course, the decade ahead looks hazardous. What with inflation recently hitting 40-year highs, a ‘cost of living crisis’ and threat of a new Cold War, knowing where to invest has never been trickier.

And yet, despite the UK stock market recently hitting a new all-time high, Mark and his team think many shares still trade at a substantial discount, offering savvy investors plenty of potential opportunities to strike.

That’s why now could be an ideal time to secure this valuable investment research.

Mark’s ‘Foolish’ analysts have scoured the markets low and high.

This special report reveals 5 of his favourite long-term ‘Buys’.

Please, don’t make any big decisions before seeing them.

Claim your free copy now

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.

Mark Hartley 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.

We think earning passive income has never been easier

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

More on Investing Articles

Investing Articles

Want a comfortable retirement? Here’s how much you need in your SIPP

The SIPP is a great vehicle for confident investors to build their personal pension over time and eventually use that…

Read more »

Investing For Beginners

3 ways I try to spot cheap shares during a stock market crash

Jon Smith talks through his process of filtering for cheap shares at a time when simply buying anything isn't the…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

As share trading hits new records, here’s why I’m planning to keep buying UK shares!

Thinking like Warren Buffett and buying 'on the dip' can unlock significant long-term returns from UK shares. Here's why.

Read more »

Elevated view over city of London skyline
Investing Articles

UK stocks: a brilliant buying opportunity?

UK stocks have taken a battering in recent days. That can be disconcerting -- but our writer is taking a…

Read more »

Bronze bull and bear figurines
Dividend Shares

2 dividend shares that could provide some shelter from the market storm

Jon Smith points out a couple of dividend shares that have yields in excess of 5% -- and that have…

Read more »

Investing Articles

I’ve been snapping up shares in this 11.6% yielding FTSE 250 growth stock

As a trade war knocks a quarter of the value off this FTSE 250 asset manager in a few days,…

Read more »

Investing Articles

I asked ChatGPT which FTSE 100 stocks are screaming buys for Trump’s tariff war. Here’s what it said

As the trade war heats up and the sell-off in stocks resumes, Paul Summers is looking for great FTSE 100…

Read more »

Investing For Beginners

Analysts now expect up to 4 UK rate cuts this year! Here’s what it could mean for the FTSE 100 index

Jon Smith points to the rapidly shifting market expectations when it comes to UK interest rates and explains the impact…

Read more »