After holding SDRL for a long time for the dividend I sold my entire holding(thousands of shares) in Feb.for approximately $39. Too much debt I thought. Any intelligent info on the board about the sustainability of the dividend? Enjoying MMLP at 8.2% return and diversified energy profile.
Board members...First, I never worry about debt if it is income producing...there are companies that are debt free that are losing money and SDRL 'is not one' of them...
Second, SDRL has some 'Blow Out Preventor' problems (bad bolts) that added down days, which will hurt earning in the second quarter...
Third, off-shore drilling is a very hot sector and SDRL will continue to shine bright in the second half of this year...! The dividend is very stable are they would not have paid some it up front in December of 2012...! $tagg...!
Please don't be the victim of the false mantra about "debt." = SDRL has a proven record of turning ONE dollar "debt" = credit = into TWO plus dollars of profit. I say the more the merrier. Management forecast a "barn-burner" 4th Q, with several additions to fleet expected to bring in high or record profits. I hope in the future cash dividend increases will be moderated so questions like yours will be moot.
You've been around here for awhile now Douglas. Not sure if you listened to the conference call, but one of the questions in the Q & A revolved around North Atlantic and SDLP. Specifically how the rig drop downs from SDRL were being allocated. The caller was a bit irate, understandably so imo (I also hold some natdf) as in a sense the entities are almost in a situation where they are competing among themselves for the drop down assets. So I'm curious how you feel about this, to be honest the organization of the various parts has become confusing to me.
High debt is the norm, although SDRL has certainly been pursuing an aggressive expansion strategy. When you are evaluating the stability of the dividend, look closely at revenue minus operating costs of the rigs. There has never been a better time to invest in offshore drillers in my opinion. These rigs can pay for themselves in a remarkably short period of time compared to their useful lives. Also, don't get too hung up on an earnings blip - a huge amount of the expenses is depreciation, so you should focus on cash flow. If you are comfortable that the fleet is high quality, management is high quality, and the market prospects are strong, those would be my "go" signals - especially since the stock hasn't really participated in the rally yet.
Thanks for the reply. I agree the drillers is the place to be, I recently loaded on Ensco (ESV) when they dipped below $58. Only $3.4 dividend but in my opinion the best driller. Maybe I'll dip back into SDRL, but very happy with MMLP.
I anticipate holding SDRL for the next couple years at least. The owner is well known for his 'pay the investors' philosophy, so even if there are some adjustments to the dividend over the long term I think it's safe to say that they'll continue larger than average payouts.
Good on you for selling- I may add shares in the 36.15 range if it gets there.
You could also look at SFL; it's another John Friedrikson company that pays similarly but offers greater diversity to your maritime exposure.
I also exited most of my SDRL position (but at a slightly lower price) with the idea of reloading around mid $36. The proceeds went into health care facilities (OHI, MPW, SBRA, HR, etc.) The selections are on a steady climb and I'm ready to rotate back into SDRL (with some extra $$)
You are correct about recommending SFL. I have received great dividends and I've managed to flip the stock twice when it's gone above $17.5 and then reloading in the low 16s.
This is a great market, but like everyone, I'm afraid of being "all in" with the possibility of a 10% pull back and no extra cash to take advantage of "Blue-Light" specials!