While FTSE 250 shares are generally known more for their growth potential, the UK’s second-largest index does have plenty of income opportunities on offer. And right now Harbour Energy (LSE:HBR) currently offers one of the highest dividend yields at an incredibly low valuation.
Buying shares today would instantly unlock a 13% annual payout at a forward price-to-earnings ratio of just 2.8. By comparison, the industry average forward earnings multiple right now is closer to 8.0. That’s a pretty massive discount versus its peers. So is this a screaming buying opportunity? Or should investors steer clear of this enterprise?
Production on the rise
In 2024, Harbour Energy successfully delivered a 40% surge in production from 186 thousand barrels of oil equivalents per day (kboepd) to 258. But in 2025, management aims to take that much further. In fact, between 2025 and 2027, the group’s aiming to boost production to an average of 450 kboepd at an operating cost of $15 per barrel.
At the same time, Harbour Energy’s projecting capital expenditures to fall significantly in 2026 and 2027, paving the way for up to $4bn of free cash flow generation. Assuming that target’s hit, investors can expect $455m of annual dividends to get paid out, maintaining the already high double-digit yield.
This is all being made possible thanks to the group’s relatively recent acquisition of Wintershall Dea’s upstream portfolio. And while it’s still early days, the performance so far appears to be living up to expectations. Obviously, that’s terrific news for income investors. Not just because of the dividend, but also the extra cash flow that can be used to reduce leverage and margin pressure from higher interest rates.
Taking a step back
Operationally speaking, this FTSE 250 enterprise seems to be firing on all cylinders. However, nothing’s ever risk-free.
The firm’s bottom line is currently being significantly handicapped by the UK government’s Energy Profits Levy, that’s recently been extended to 2030. In fact, in 2024, the group’s effective tax rate ended up being over 100%! As such, net income in 2024 was actually in the red despite profits at the operating level almost doubling.
There’s also the risk of commodity price fluctuations that can never go ignored when investing in oil & gas producers. At around $61 per barrel, Harbour Energy’s more than capable of turning a pre-tax profit given its much lower cost of production. But with other fixed expenditures to consider, falling oil prices could severely impact the company’s ability to deliver on its dividend targets over the next few years.
A stock worth buying?
Given the increased regulatory landscape and environmental scrutiny surrounding oil & gas projects, Harbour Energy isn’t operating in an energy-friendly environment. And the effect of windfall taxes is plain to see on its income statement.
Even if the company hits its production targets, it seems the financial success of this business largely boils down to external factors beyond management’s control. In other words, there’s a lot of risk attached to this firm right now, explaining why the shares are seemingly so cheap. With that in mind, conservative investors may want to look elsewhere for opportunities.
But for those comfortable with taking on substantial regulatory and political risks, Harbour Energy could be worth a closer look.
