Why It Might Not Make Sense To Buy Harbour Energy plc (LON:HBR) For Its Upcoming Dividend

Readers hoping to buy Harbour Energy plc (LON:HBR) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Thus, you can purchase Harbour Energy's shares before the 7th of September in order to receive the dividend, which the company will pay on the 18th of October.

The company's next dividend payment will be US$0.12 per share, on the back of last year when the company paid a total of US$0.24 to shareholders. Last year's total dividend payments show that Harbour Energy has a trailing yield of 7.5% on the current share price of £2.536. If you buy this business for its dividend, you should have an idea of whether Harbour Energy's dividend is reliable and sustainable. So we need to investigate whether Harbour Energy can afford its dividend, and if the dividend could grow.

See our latest analysis for Harbour Energy

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Harbour Energy reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. The good news is it paid out just 9.1% of its free cash flow in the last year.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. Harbour Energy reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

Unfortunately Harbour Energy has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.

Get our latest analysis on Harbour Energy's balance sheet health here.

To Sum It Up

Is Harbour Energy an attractive dividend stock, or better left on the shelf? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Harbour Energy.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Harbour Energy. Our analysis shows 1 warning sign for Harbour Energy and you should be aware of this before buying any shares.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.