While hunting high-yielding dividend stocks for my passive income portfolio, I found this lesser-known oil and gas company on the FTSE 250.
Harbour Energy (LSE: HBR) caught my attention after the stock climbed 18% in the past month. Despite the rapid price gains, it still boasts an eye-watering 11.17% yield!
A good first impression — but high yields can be tricky and dividends are never guaranteed. Before I buy the stock, I need to see if it’s got what it takes to make it in the long run.
A sustainable dividend stock?
Harbour Energy’s the largest independent oil and gas producer in the UK’s North Sea, formed in 2021 through a reverse takeover of Premier Oil. Naturally, it’s heavily exposed to oil and gas prices, which have been volatile of late.
In theory, energy companies are strong candidates for passive income portfolios. This is thanks to their cash-generative assets and history of dividend payments. Harbour Energy’s leaned into this expectation with a generous capital returns policy. In 2024, it committed to return $200m to shareholders via dividends helping to support a strong dividend forecast going forward.
However, such high yields often come with risks – and in Harbour’s case, they appear substantial.
Profitability under pressure
Despite its impressive yield, Harbour Energy’s currently unprofitable. In its most recent annual results, the company posted a pre-tax loss of $93m, down from a net profit of $45m the year prior. The losses were driven by impairment charges, lower commodity prices and a 130% increase in UK taxes.
The Energy Profits Levy, introduced by the UK government, has had a major impact on North Sea operators. More than 80% of its UK profits were taxed in 2024, eroding the company’s ability to reinvest and weighing heavily on sentiment.
This new fiscal environment has been described as ‘hostile’, prompting a share price collapse over the past few years. It raises serious questions about the sustainability of dividends going forward.
A new strategy
In response to the challenges, Harbour Energy is diversifying its revenue streams. In late 2024, it completed the $11.2bn acquisition of Wintershall Dea’s non-Russian upstream assets, significantly expanding its international footprint. The move aims at reducing its dependence on the UK North Sea and bring exposure to more favourable tax regimes.
It’s also set to transform it into one of the largest independent oil and gas companies globally, with production expected to double. This scale could support future cash flows and dividend payments, provided energy prices remain supportive.
My verdict
While there’s no question the recent price recovery and strategic expansion are promising, I’m still on the fence about Harbour. One month of positive growth isn’t enough to confirm a price recovery, which leaves only dividends as a value proposition.
And while an 11% yield’s undoubtedly attractive, it has no notable dividend track record and limited cash flows to support payments. As such, I’m not considering buying Harbour Energy shares at this time but will keep the budding energy firm on my watchlist.
