Whereas FTSE 250 shares are typically recognized extra for his or her progress potential, the UK’s second-largest index does have loads of revenue alternatives on provide. And proper now Harbour Power (LSE:HBR) at the moment provides one of many highest dividend yields at an extremely low valuation.

Shopping for shares right now would immediately unlock a 13% annual payout at a ahead price-to-earnings ratio of simply 2.8. By comparability, the business common ahead earnings a number of proper now’s nearer to eight.0. That’s a reasonably huge low cost versus its friends. So is that this a screaming shopping for alternative? Or ought to traders avoid this enterprise?

Manufacturing on the rise

In 2024, Harbour Power efficiently delivered a 40% surge in manufacturing from 186 thousand barrels of oil equivalents per day (kboepd) to 258. However in 2025, administration goals to take that a lot additional. In actual fact, between 2025 and 2027, the group’s aiming to spice up manufacturing to a median of 450 kboepd at an working value of $15 per barrel.

On the identical time, Harbour Power’s projecting capital expenditures to fall considerably in 2026 and 2027, paving the way in which for up to $4bn of free money circulation era. Assuming that concentrate on’s hit, traders can count on $455m of annual dividends to receives a commission out, sustaining the already excessive double-digit yield.

That is all being made potential because of the group’s comparatively latest acquisition of Wintershall Dea’s upstream portfolio. And whereas it’s nonetheless early days, the efficiency to date seems to be residing up to expectations. Clearly, that’s terrific information for revenue traders. Not simply due to the dividend, but additionally the additional money circulation that can be utilized to scale back leverage and margin stress from larger rates of interest.

Taking a step again

Operationally talking, this FTSE 250 enterprise appears to be firing on all cylinders. Nevertheless, nothing’s ever risk-free.

The agency’s backside line is at the moment being considerably handicapped by the UK authorities’s Power Earnings Levy, that’s just lately been prolonged to 2030. In actual fact, in 2024, the group’s efficient tax price ended up being over 100%! As such, web revenue in 2024 was truly within the crimson regardless of income on the working degree nearly doubling.

There’s additionally the danger of commodity price fluctuations that may by no means go ignored when investing in oil & fuel producers. At round $61 per barrel, Harbour Power’s greater than able to turning a pre-tax revenue given its a lot decrease value of manufacturing. However with different fastened expenditures to think about, falling oil costs might severely affect the corporate’s capacity to ship on its dividend targets over the following few years.

A inventory price shopping for?

Given the elevated regulatory panorama and environmental scrutiny surrounding oil & fuel tasks, Harbour Power isn’t working in an energy-friendly atmosphere. And the impact of windfall taxes is obvious to see on its revenue assertion.

Even when the corporate hits its manufacturing targets, it appears the monetary success of this enterprise largely boils down to exterior elements past administration’s management. In different phrases, there’s numerous danger connected to this agency proper now, explaining why the shares are seemingly so low cost. With that in thoughts, conservative traders could need to look elsewhere for alternatives.

However for these snug with taking over substantial regulatory and political dangers, Harbour Power might be price a more in-depth look.