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Based on payments from the last 12 months, Port energy (LSE:HBR) is one of the best dividend stocks on the market FTSE 250. Due to its generous performance, it sits comfortably in the top 10% of stocks in the second tier of UK listed companies.
And following the acquisition of assets formerly owned by Wintershall Dea, it is now the largest North Sea oil and gas producer. This transformative deal, which was completed in September 2024, means the group now has the financial firepower to increase its dividend further.
In fact, the company intends to pay $380 million to legacy shareholders over the next 12 months. At the current exchange rate (January 9), this equates to 21.5 pence (26.4 cents) per share. At the time of writing, Harbor Energy shares are changing hands for around 265p. This implies a return of 8.1%, more than double the FTSE 250 average.
But shareholder returns are never guaranteed, particularly in the oil and gas sector. Earnings can be volatile, meaning dividends can fluctuate significantly from period to period.
However, in its short existence as a publicly traded company, Harbor has an impressive track record of steadily increasing its payouts (see table below).
| Financial year | Dividend type | Dividend per share ($) |
|---|---|---|
| 2021 | End | 0.11 |
| 2022 | Provisional | 0.11 |
| 2022 | End | 0.12 |
| 2023 | Provisional | 0.12 |
| 2023 | End | 0.13 |
| 2024 | Provisional | 0.13 |
Excess profits
This has undoubtedly been made possible by increases in wholesale oil and gas prices, particularly in 2021 and 2022.
But this is a double-edged sword.
In response to public pressure, the previous government introduced a “windfall tax”, officially known as the Energy Profits Tax (EPL). Not surprisingly, the company's stock price has steadily declined since the May 2022 announcement.
The subsequent increases mean the group now faces an effective corporate tax rate of 78% on its profits derived from the UK continental shelf.
This partly explains the acquisition of the Wintershall Dea oil and gas fields. None of these are in UK waters, so the EPL does not apply. And thanks to the agreement, the group now produces 90% more than before. This gives me some confidence that it can continue to grow its dividend.
Raw material prices
Current legislation means the EPL will remain in place until March 31, 2030, but there are provisions for its removal.
On the one hand, a drop in the price of oil and gas would hurt revenues. However, if (for six consecutive months) the monthly average oil price falls below $71.40 (and the gas price drops below 54 pence per therm), the “windfall tax” will be abolished.
But it seems unlikely that this will happen anytime soon.
Although Brent crude oil is falling, it still remains above the minimum price.
And I wonder if petrol prices will fall below 54p again.
In my opinion, it seems that the EPL is here to stay.
my opinion
Despite this, I plan to hold on to my Harbor Energy shares.
This is because I think diversifying outside the UK is a good move.
And while it is impossible to accurately predict future energy prices, the additional profits made outside British waters should help ensure the group can at least maintain (in cash terms) its generous dividend.
