Is it Time to Consider This Dividend Driller?
Dr. Osman is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Last year, SeaDrill (NYSE: SDRL), a provider of deepwater drilling services, bought a 33.75% stake in Asia Offshore Drilling for $54 million. However, the acquisition of this stake was only the first step in along the path to obtaining the entire company. Since October, SeaDrill has made five serial bargains on buying Asia Offshore Drilling and thereby coherently increased its ownership to 64.23%, 65.76%, 65.85%, 65.89% and finally to 65.93% of Asia Offshore Drilling.
Recently, SeaDrill initiated a replacement of its business operations outside Norway in order to achieve higher logistic efficiencies and to expand its customer network to Dubai, Houston, London and Singapore. It might help the company capitalize on its growth strategy.
SeaDrill is currently developing a new-build program. This program suggests creation of such new builds as six ultra-deepwater drill ships, four environment jack-up rigs, four tender rigs, two ultra-deepwater semisubmersible rigs, as well as a harsh-environment jack-up rig and a semi-tender rig. The program implementation is scheduled from Q4 2012 to Q1 2015.
When the program is completed, investors can expect SeaDrill’s revenue to grow, because the above-mentioned new-build projects provide $4.7 billion revenue potential. Moreover, analysts expect the global economic environment to recover over the next 2–3 years, and drilling activity to stabilize.
SeaDrill vs. the Rest
Deepwater drillers such as Transocean Ltd (NYSE: RIG) and Ensco PLC ADR (NYSE: ESV) are among SeaDrill’s main rivals. In the table below, we compare the main stock metrics within a group of these companies.
SeaDrill has a ROE of 13.1%, while Transocean's rate is extremely negative, but Seadrill’s performance looks a bit better than Ensco’s. Of these three companies, Ensco has the safest debt philosophy. Ensco’s debt/equity ratio is almost a third of the SeaDrill figure. However, yield-hungry investors would certainly prefer SeaDrill ahead of Transocean or Ensco, due to SeaDrill’s extremely high dividend yield. Moreover, the significantly higher ttm PE ratio of Seadrill suggests a more promising future might be expected for SeaDrill than for its rival, Ensco. The comparison above allows me to suggest that Seadrill is currently performing much better than Transocean and Ensco. Nevertheless, Seadrill, with an 8.2% dividend yield, currently seems particularly attractive to dividend growth investors.
Firstly, the company follows an investor-friendly dividend philosophy delivering consistent and attractive returns. An 8.2% dividend yield is highly attractive to yield-hungry investors, when compared to the industry average of 1.8 %. Secondly, SeaDrill is currently trading within its fair value range and offering investors a good entry price. The above-mentioned facts allow me to suggest that the world’s largest drilling company, Seadrill, is a great long-term buy.
Interested in Additional Analysis?
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ecofinstat has no positions in the stocks mentioned above. The Motley Fool owns shares of Transocean and Seadrill. Motley Fool newsletter services recommend Seadrill. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.