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My passive income portfolio generates a steady stream of dividend payments with minimal effort on my behalf. Currently, I reinvest these dividends back into buying the stocks that paid them to maximise long-term income. This is known as dividend compounding. And it is a similar idea to leaving interest to accrue in a savings account.
When I decide to fully retire, I will draw down some of these dividends yearly and live off those.
Given this, I am always on the lookout for high-yielding stocks that I could add to this passive income portfolio. One such share that has caught my eye recently is the FTSE 250’s Harbour Energy (LSE: HBR).
What’s the passive income outlook?
The oil and gas firm paid a 26-cent dividend in 2024, fixed at a sterling equivalent of 20.1578p. This gives a yield on the current £1.97 share price of a whopping 10.2%!
This is one of the highest yields in the FTSE 250 and the FTSE 100. The average yield of the former is presently 3.4% and of the latter 3.6%.
So investors considering £10,000 in the firm would make £1,020 in first-year dividends. Over 10 years on the same average yield, this would rise to £10,200, and over 30 years to £30,600.
However, using dividend compounding, this would rise to £17,613 after 10 years, not £10,200. And over 30 years on the same basis, it would increase to £200,535 rather than £30,600!
By that time, adding in the £10,000 stake, the total value of the holding would be £210,535. And that would pay an annual passive dividend income of £21,475 by that time!
How strong does the business look?
Harbour Energy is involved in the acquisition, exploration, development, and production of oil and gas reserves around the world.
Its 2024 results saw revenue jump 66% year on year to $6.226bn (£4.62bn), and operating profit soar 77% to $1.648bn. Profit before tax nearly doubled to $1.219bn.
However, mainly due to the UK’s Energy Profits Levy (EPL), it made a post-tax loss of $93m. The EPL was 38% which, added to the 30% corporation tax and a 10% supplementary charge energy companies already pay, makes a headline rate of 78%.
Its Q1 trading update was also strong, with 500,000 barrels of oil equivalent produced against 172,000 in the same period last year. The oil equivalent measure reflects the energy content of different fuels (such as gas) in terms of one crude oil barrel’s worth of energy.
A risk for the firm is any major sustained downturn in oil and gas prices over the long term. That said, analysts forecast its earnings will grow by 8.6% every year to end-2027. And it is growth here that ultimately drives any firm’s share price higher over the long run.
Importantly for me, Harbour Energy had its elite top-tier investment credit ratings reconfirmed by Moody’s and Fitch. Such ratings enable firms to manage their finances more easily and cheaply.
My investment view
I am happy with the stocks in my passive income portfolio, but Harbour Energy is now on my watchlist should one need replacing.
As for other investors without such a constraint, I think it strongly merits their consideration.
