My High Dividend Stocks Blog http://myhighdividendstocks.posterous.com Most recent posts at My High Dividend Stocks Blog posterous.com Fri, 05 Aug 2011 00:11:03 -0700 SeaDrill drilled lower. Should you buy it? http://myhighdividendstocks.posterous.com/seadrill-drilled-lower-should-you-buy-it http://myhighdividendstocks.posterous.com/seadrill-drilled-lower-should-you-buy-it
SeaDrill (SDRL) took a beating yesterday.  The stock price dropped over 10% while the broader market dropped 4%. 
 
SeaDrill is not low enough to buy yet despite the huge drop yesterday.  Consider buying SDRL when it drops to $15.12.  I wrote about SeaDrill in June.  That analysis still stands: http://bit.ly/SeaDrillJun2011.  I'm concerned that the dividend is not safe.
 
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http://files.posterous.com/user_profile_pics/697493/v_for_vendetta_guy_fawkes_mask11.jpg http://posterous.com/users/4wuf4tt8LZzb Jason Brizic myhighdividendstocks Jason Brizic
Wed, 01 Jun 2011 13:34:19 -0700 SeaDrill (SDRL) is a high dividend stock, but it is also speculative at $35.67. http://myhighdividendstocks.posterous.com/seadrill-sdrl-is-a-high-dividend-stock-but-it http://myhighdividendstocks.posterous.com/seadrill-sdrl-is-a-high-dividend-stock-but-it

Seeking Alpha contributor Power Hedge published an article on May 31st titled “SeaDrill: Analyzing First Quarter Results, Dividend Increase.”  He said that SeaDrill’s (SDRL) overall results were largely in line with expectations and overall continue to make the company look like a good investment.  I disagree.  I think that SeaDrill is a high dividend stock currently yielding 8.4%, but the dividend is not stable and the common stock has been speculatively priced since September 2010.

SeaDrill (SDRL)

Market price: $35.67

Shares: 466.55 million (from the latest quarterly report)

Dividend Record

Dividend: increase from $0.65 to $0.70 quarterly + $0.05 special dividend for the next four quarters

Dividend yield: 8.4% (includes special dividend)

Dividend payout ratio: 125% ($3.00 dividend/$2.39 adjusted 2010 EPS)  The dividend is in jeopardy.

Earning power

Earnings adjusted for changes in capitalization due to stock issuance

            EPS                 Net inc.           Adj EPS

2006    $0.61               $214 M            $0.46

2007    $1.20               $502 M            $1.08

2008    ($0.41)             ($164 M)         ($0.35)

2009    $3.00               $1,261 M         $2.70

2010    $2.73               $1,117 M         $2.39

5 year average earnings = $1.26

Value territory below 12x five year average earnings = $15.12 (stock price was at $15 in July 2010)

Speculative territory above 20x five year average earnings = $25.20  This stock has been in speculative territory since September 2010.

Current market price is 28.3 times five year average earnings.  This is SPECULATIVE.

Balance sheet strength: looks alright, but I haven’t delved deeply into it.  It appears to be expanding rapidly.  I’m concerned about what will happen when there is another financial crisis and the price of oil drops to the $40/barrel range again.

Image002

Book value per share: $11.45  SDRL last visited this price in July 2009.

Price to book value per share: 3.11

Current ratio: 1.15 (2.0 or greater is good)

Quick ratio: 0.87 (1.0 or greater is good)

Technicals: link to the 3 year chart with all my favorite indicators - http://stockcharts.com/h-sc/ui?s=SDRL&p=W&b=5&g=0&id=p71303834325

Disclosure: I don’t own SeaDrill.

Conclusion: I would consider buying this high dividend stock below $15.12 when the stock enters value territory.  You might even get this deep water ocean driller at or below book value per share.

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SeaDrill: Analyzing First Quarter Results, Dividend Increase.

SeaDrill Ltd. (SDRL) reported its first quarter results on Friday, May 27. The overall results were largely in line with expectations and overall continue to make the company look like a good investment.

First, a few highlights from SeaDrill’s first quarter earnings report:

  • SeaDrill had Q1 2011 EBITDA of $573 million.
  • SeaDrill reported Q1 net income of $823 million. This gives the company a trailing EPS for the quarter of $1.84.
  • SeaDrill increased the dividend to $0.70 per share per quarter. The company also declared an additional special dividend of $0.20 per share to be paid in quarterly installments of $0.05 per share each quarter for the next four quarters.
  • SeaDrill ordered a harsh environment drilling rig named West Linus. The company has already signed a five-year contract with ConocoPhillips (COP) for this rig. I briefly discussed this rig and included the details of this contract in an earlier article on Seeking Alpha, which you can read here.
  • SeaDrill ordered two new tender rigs and leased them out to Chevron (CVX). The rigs will be under a five-year lease with Chevron once delivered.
  • SeaDrill takes delivery of one ultra-deepwater semi-submersible rig and one semi-tender rig.

SeaDrill’s overall results showed little change from the fourth quarter of 2010. Most of the differences were caused by various accounting rules. The company’s first quarter results explain the causes of the numbers.

  • Revenues dropped from $1,169 million in Q4 2010 to $1,110 million in Q1 2011.
  • Operating profit dropped from $479 million in Q4 2010 to $430 million in Q1 2011. The fourth quarter results included a $26 million gain on the sale of the West Larissa jack-up rig. This is a non-recurring gain and is not included in the first quarter results. That accounts for more than half of the decline in operating profit. The remainder is due to small declines in revenues (and thus profits) from the Floaters, Well Services, and Tender Rigs divisions. The decline in the Tender Rigs profit was also due to non-recurring revenues that were booked in the fourth quarter.
  • Operating cash flow in Q1 2011 was $509 million. This represents an increase of approximately $39.6 million from Q4 2010. Q4 2010 operating cash flow was $479.4 million.
  • SeaDrill’s net income and earnings per share show substantial improvements over Q4 2010. Net income in Q1 2011 was $823 million. Net income in Q4 2010 was $268.1 million. Q1 2011 basic EPS was $1.84 compared to $0.61 in Q4 2010. Most of this was due to a gain of $477 million from the Seawell deconsolidation. SeaDrill’s interest expenses on its debt for the quarter also dropped from $109 million in Q4 2010 to $77 million in Q1 2011.

SeaDrill’s net income for the quarter is abnormally high and it is unlikely that the company will be able to repeat those numbers throughout the year. SeaDrill reported a first quarter EPS of $1.84. Annualized, that works out to $7.36 for the full year 2011. The company had an EPS of $2.73 for the full year 2010. It becomes rather obvious that the company cannot be growing at the rate that the numbers seem to show. It makes more sense to look at the company’s cash flow when comparing quarterly results in this case.

SeaDrill had Q1 2011 operating cash flows of $509 million. This is an increase of $39.6 million (8.26%) over the fourth quarter of 2010. While not as impressive as net income growth, this is still a respectable growth rate. It is also much more realistic and repeatable. If SeaDrill maintains the same operating cash flow for the remaining quarters of the year, it would have a full year 2011 OCF of $2,036 million. This represents an increase of 56.5% over the 2010 OCF of $1,300.4 million. If the company does indeed succeed in reaching an OCF of $2,036 million, this would almost certainly result in an additional dividend increase in a later quarter of this year.

SeaDrill is now paying a forward dividend of $3.00 per share (including special dividend). This gives the stock a forward dividend yield of 8.44% at the May 27 closing price of $35.56 per share. At a dividend yield that high, the company does not have to grow very much to outperform. It does look poised to continue its growth trajectory, however.

SeaDrill secured new contracts for $1.2 billion in this quarter. To put that number into perspective, it is more than SeaDrill’s net income in 2010. It is also very close to the company’s operating cash flow from 2010. As I have mentioned in previous articles on SeaDrill, the company is currently having no problems getting new contracts for its rigs. Furthermore, the company is securing day rates on new contracts that are very close to the current outstanding rates. SeaDrill looks like it is well positioned to take advantage of the growth in offshore drilling.

SeaDrill has continued to expand its fleet throughout the first quarter as it has done for the past several quarters. On November 10, 2010, SeaDrill CEO Alf Thorkildsen briefly discussed the company’s growth potential in a press release:

Our commitment to establish SeaDrill as a leading drilling contractor through investing in new high specification offshore drilling units built by quality yards has been well received by our customers and investors. With the most modern drilling fleet in the world and a total contract backlog of $11.5 billion, we have created a solid platform for further growth and a continued high return to our shareholders.

As Mr. Thorkildsen noted, SeaDrill has a revenue backlog of approximately $11 billion. This is roughly equal to 10 quarters of revenues. The company has expanded since then, however. The company ordered three new rigs in the first quarter, which are under contract (two to Chevron and one to ConocoPhillips). During the quarter, the company had 42 offshore rigs in operation and three stacked units. One of these stacked units will be returning to operation in the second quarter which should have a favorable impact on operational cash flow. The company will be selling the West Juno rig in June and expects to realize an $18 million gain on the sale price.

SeaDrill will also retire the T8 tender rig and expects this to have no adverse impact on the income statement for the second quarter. SeaDrill is retiring the T8 rig because of its age; the company specifically states that the modern fleet is a major competitive advantage for the company (and I agree) and this is one of the oldest rigs owned by the company. West Juno was built in 2010, so the disposal of this rig will not contribute much to the modernization.

Simply put, SeaDrill Ltd. Has a very high dividend that on its own is likely to make the company outperform - particularly if the S&P 500 stays relatively flat over the next year. In addition to that, however, SeaDrill also has rather impressive growth characteristics that should enable the company to outperform. The stock continues to look cheap at these levels.

Zack's Investment Research expects full year EPS to be $2.90 in 2011 and $3.23 in 2012. I would not be surprised to see EPS come in a bit higher than Zack’s predicts due to the abnormally large EPS from this quarter. A 2011 EPS of $2.90 gives the company a forward P/E for the current year of 12.26. The $3.23 EPS estimate for 2012 gives the stock a P/E of 11 for 2012. It gives the stock a PEG ratio of 1.08. Assuming that Zack’s is correct, the fair value for the stock is $32.94. It's predicting $0.68 EPS for the current quarter (Q2). I think that it's right; the current quarter will probably not be as high as the first quarter was.

Net income can be a poor way to evaluate this company for the previously mentioned reasons, however. If SeaDrill can maintain the same OCF throughout the year that it did in the first quarter, then the P/OCF ratio is 7.73 ($4.60 of OCF per share). SeaDrill had negative FCF for the first quarter as is typical for this company (for more information, read my article on SeaDrill’s business model). Analysts are expecting earnings growth for the next year of 11.36%.

At the current prices, an investor buying today is getting the 8.44% dividend for free. The stock has been hovering between $32 and $36 for months -- it is near the top of the range now. If you are willing to be patient, an even better entry price may present itself. The stock is certainly not a bad value at its current price, though.

Disclosure: I am long SDRL.

Link to Power Hedge’s article: http://seekingalpha.com/article/272628-seadrill-analyzing-first-quarter-results-dividend-increase

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http://files.posterous.com/user_profile_pics/697493/v_for_vendetta_guy_fawkes_mask11.jpg http://posterous.com/users/4wuf4tt8LZzb Jason Brizic myhighdividendstocks Jason Brizic
Mon, 04 Apr 2011 10:12:46 -0700 Buying Seadrill (SDRL) today would be speculative. http://myhighdividendstocks.posterous.com/buying-seadrill-sdrl-today-would-be-speculati http://myhighdividendstocks.posterous.com/buying-seadrill-sdrl-today-would-be-speculati

Morningstar initiated credit coverage of Seadrill (SDRL) today with an issuer rating of B.  Morningstar is concerned that Seadrill will not be able to pay for existing debt interest, add additional debt interest from planned rig purchases, and maintain its high dividend.  I share their concern.

I haven’t performed the methodical, deep analysis on Seadrill yet, but this information is not encouraging.  I believe that Seadrill common stock is too expensive to be bought as an investment right now.  Let me explain.

I didn’t compute Seadrill’s 2010 earnings in my last article that used Seadrill as one of the examples of investment and speculative stocks: http://bit.ly/SDRLexample .  I only computed the EPS through 2009.  I was attempting to compute Seadrill’s average earnings over 5 years, but Morningstar wouldn’t display the 2010 earnings.  However, the quarterly filings were available and I have since computed the 2010 EPS.

The following table is computed by using the net income available for common shares divided by current quantity of common shares (380.86 M):

            EPS (adjusted for changes in capitalization)

2006    $0.56

2007    $1.32

2008    ($0.43)

2009    $3.31

2010    $3.08

Seadrill’s five year average earnings (2006-2010) were $1.57 per share.  I recommend that you don’t pay more than 20 times the 5 year average earnings for any common stock to make an investment.  $1.57 x 20 = $31.40 per share is the upper limit for an investment basis.  Seadrill’s current market price is $37.21; therefore, Seadrill would qualify a speculative purchase at today’s market price.

I would consider buying Seadrill for under twelve times the 5 year average earnings.  $1.57 x 12 = $18.84 per share for a value investment basis.  SDRL last traded for $18.84 back in September 2009.

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New Credit Rating: Seadrill

by Morningstar Credit Committee | 04 Apr 11 

Morningstar is initiating credit coverage of Seadrill SDRL with an issuer rating of B. Seadrill is a leading offshore drilling contractor for the oil and gas industry. Our rating reflects the firm's aggressive business strategy of fully debt financing its rig construction program, stretched credit metrics, and aggressive dividend policy.

At the end of 2010, Seadrill had about $9.2 billion in total debt versus about $1.4 billion in available cash and marketable securities and $1 billion in investments. The debt is broken into $5.2 billion in credit facilities and debt that is secured by Seadrill's rigs, $1.8 billion in Ship Finance sales and leaseback transactions, and $2.2 billion in bonds, convertible bonds, and credit facilities supported by restricted cash. In early 2011, Seadrill bought two deep-water rigs for $1.2 billion, financed using bank debt. We estimate that at the end of 2011, Seadrill's EBITDA/interest ratio will be around 5.2 times, its debt/capital will be around 0.73, and its debt/EBITDA will be 4.7 times. Despite these stretched credit metrics, Seadrill currently pays out more than $1.0 billion in dividends annually.

In addition, Seadrill faces near-constant financing challenges. The majority of Seadrill's debt matures in five to seven years, and we estimate it has $5.2 billion coming due in the next three years. We do not think Seadrill's cash from operations will be enough for its needs, given its already announced rig construction spending of $4.6 billion. We estimate Seadrill will generate between $1.9 billion and $2.3 billion in operating cash flow annually over the next three years, or about $5.7 billion in the aggregate. Therefore, Seadrill needs to fill a financing gap of about $4.1 billion.

From a risk perspective, Seadrill's financial leverage has amplified its exposure to the inherent cyclicality of the contract drilling industry. Market day rates are volatile and outside drillers' control, which contributes to significant swings in profitability on a short-term basis. In addition, explosions, hurricanes, and government expropriation introduce tail risk to the firm's operations.

Link to original article: http://torontostar.morningstar.ca/globalhome/industry/news.asp?articleid=375748

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http://files.posterous.com/user_profile_pics/697493/v_for_vendetta_guy_fawkes_mask11.jpg http://posterous.com/users/4wuf4tt8LZzb Jason Brizic myhighdividendstocks Jason Brizic
Tue, 29 Mar 2011 12:26:54 -0700 A Mechanical Check for Investment in Common Stocks. The First in a Series. http://myhighdividendstocks.posterous.com/a-mechanical-check-for-investment-in-common-s http://myhighdividendstocks.posterous.com/a-mechanical-check-for-investment-in-common-s

In this blog post I’m going discuss some aspects of the mechanical tests your should apply to common stocks you are considering to buy and at what price.

On March 16th, 2011 I wrote about not buying a common stock generally above 20 times average earnings in this post: http://bit.ly/MaxAvgPE .  I have to admit that I was a little lazy.  Like most people I used 20 times the current annual earnings to complete the table in that blog post because it the info was readily available, but a five or ten year average is more through and enlightening.  It takes a while to find all the earnings data for the past ten years and then to make adjustments for changes in capitalization, warrants, and convertible preferred stocks.

The excerpt below from Benjamin Graham’s Security Analysis 2nd edition is a devastating indictment on how speculative so-called investors are both in 1940 and today.

Over the next couple of days I’m going to calculate many values for testing common stocks for investment basis that I’ve already written about on this blog.  The goal is separate the speculative stocks from the investment stocks.  The list includes: GoldCorp (GG), Proctor & Gamble (PG), American Capital Agency Corp. (AGNC), SeaDrill (SDRL), Safe Bulkers (SB), and AT&T (T).

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Higher Prices May Prevail for Speculative Commitments.  The intent of this distinction must be clearly understood.  We do not imply that it is a mistake to pay more than 20 times average earnings for any common stock.  We do suggest that such a price would be speculative.  The purchase may easily turn out to be highly profitable, but in that case it will have proved a wise or fortunate speculation.  It is proper to remark, moreover, that very few people are consistently wise or fortunate in their speculative operations.  Hence we may submit, as a corollary of no small practical importance, that people who habitually purchase common stocks at more than about 20 times their average earnings are likely to lose considerable money in the long run.  This is the more probable because, in the absence of such a mechanical check, they are prone to succumb recurrently to the lure of bull markets, which always find some specious argument to justify paying extravagant prices for common stocks.

            Other Requisites for Common Stocks of Investment Grade and a Corollary Therefrom.  It should be pointed out that if 20 times average earnings is taken as the upper limit of price for an investment purchase, then ordinarily the price paid should be substantially less than this maximum.  This suggests that about 12 or 12.5 times earnings may be suitable for the typical case of a company with neutral prospects.  We must emphasize also that a reasonable ratio of market price to average earnings is not the only requisite for a common-stock investment.  It is a necessary but not sufficient condition.  The company must be satisfactory also in its financial set-up and management, and not unsatisfactory in its prospects.

            From this principle there follows another important corollary, viz.: An attractive common-stock investment is an attractive speculation.  This is true because, if a common stock can meet the demand of a conservative investor that he get full value for his money plus not unsatisfactory future prospects, then such an issue must also have a fair chance of appreciating in market value.

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http://files.posterous.com/user_profile_pics/697493/v_for_vendetta_guy_fawkes_mask11.jpg http://posterous.com/users/4wuf4tt8LZzb Jason Brizic myhighdividendstocks Jason Brizic
Mon, 14 Mar 2011 15:43:03 -0700 Time For a PE Ratio History Lesson. http://myhighdividendstocks.posterous.com/time-for-a-pe-ratio-history-lesson http://myhighdividendstocks.posterous.com/time-for-a-pe-ratio-history-lesson

The S&P 500 index has had quite a run since its March 2009 bottom.  It hit bottom at 666 points on March 9th, 2009 and has powered 94.5% higher to 1,249 today.

http://bit.ly/SP5003yrs

I think it’s time to reexamine the S&P 500 PE ratio.  Are we closer to a market top or a market bottom?  The price to earnings ratio for the S&P 500 is currently 18 (http://www.decisionpoint.com/tac/Swenlin.html ).  It has been around or above 20 since 2003.  I don’t think that the market is anywhere near the value level.

Time for a little price to earnings ratio history lesson.  The following excerpt comes from the book Security Analysis (2nd Edition) pg. 536 and it is enlightening 71 years later.

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In previous chapters various references have been made to Wall Street’s ideas on the relation of earnings to values.  A given common stock is generally considered to be worth a certain number of times its current earnings.  This number of times, or multiplier, depends partly on the prevailing psychology and partly on the nature and record of the enterprise.  Prior to the 1927-1929 bull market ten times earnings was the accepted standard of measurement.  More accurately speaking, it was the common point of departure for valuing common stocks, so that an issue would have to be considered exceptionally desirable to justify a higher ratio, and conversely.

            Beginning about 1927 the ten-times-earnings standard was superseded by a rather confusing set of new yardsticks.  On the one hand, there was a tendency to value common stocks in general more liberally than before.  This was summarized in a famous dictum of a financial leader implying that good stocks were worth fifteen times their earnings.1  There was also the tendency to make more sweeping distinctions in the valuations of different kinds of common stocks.  Companies in especially favored groups, e.g., public utilities and chain stores, in 1928-1929, sold at a very high multiple of current earnings, say, twenty-five to forty times.  This was true also of the “blue chip” issues, which comprised leading units in miscellaneous fields.  As pointed out before, these generous valuations were based upon the assumed continuance of the upward trend shown over a longer or shorter period in the past.  Subsequent to 1932 there developed a tendency for prices to rule higher in relation to earnings because of the sharp drop in long-term interest rates.

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This chart confirms that there has been a change in investor valuation of common stocks over the years.  The bottoms of S&P 500 has been rising.  Too bad the chart cuts off in 2003.

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  How low did the S&P 500 P/E ratio fall to during the Panic of 2008-2009?

It didn’t fall during the panic.  On the contrary, it skyrocketed because earnings were falling faster than stock prices.    It has settled in the 18-20 PE range since the end of 2009.  Dividend yields tend to be highest at market bottoms.  The last time the S&P 500 yielded over 6% was in 1982.  We are closer to the top of the market than the bottom.  If you are in the market, then you should make plans to get out before the next financial crisis.

Current price to earnings ratios of stock mentioned often on this blog:

American Capital Agency Corp. (AGNC) – 4.00

SafeBulkers Inc. (SB) – 4.98

SeaDrill (SDRL) – 13.70

Terra Nitrogen (TNH) – 13.51

AGNC and SafeBulkers are high dividend stocks in the value zone, but only SafeBulkers has earning power and a strong balance sheet.

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http://files.posterous.com/user_profile_pics/697493/v_for_vendetta_guy_fawkes_mask11.jpg http://posterous.com/users/4wuf4tt8LZzb Jason Brizic myhighdividendstocks Jason Brizic
Wed, 02 Mar 2011 15:00:57 -0800 Seeking Alpha contributor Power Hedge is bullish on SeaDrill (SDRL). http://myhighdividendstocks.posterous.com/seeking-alpha-contributor-power-hedge-is-bull http://myhighdividendstocks.posterous.com/seeking-alpha-contributor-power-hedge-is-bull

Seeking Alpha contributor Power Hedge is bullish on SeaDrill (SDRL).  He cites reasons why in this article:

http://seekingalpha.com/article/255853-seadrill-why-i-remain-bullish

I agree with his sentiments, but I would wait for a stock market correction or crash to buy it dirt cheap at around $20.00 share.  That 7% yield would jack up to double digits.

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http://files.posterous.com/user_profile_pics/697493/v_for_vendetta_guy_fawkes_mask11.jpg http://posterous.com/users/4wuf4tt8LZzb Jason Brizic myhighdividendstocks Jason Brizic
Tue, 01 Mar 2011 19:26:25 -0800 Why you shouldn't be concerned with SeaDrill's exposure to Gulf of Mexico drilling permit delays. http://myhighdividendstocks.posterous.com/why-you-shouldnt-be-concerned-with-seadrills http://myhighdividendstocks.posterous.com/why-you-shouldnt-be-concerned-with-seadrills

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Deepwater oil driller SeaDrill (SDRL) has the least exposure to the US government’s drilling permit delays amongst ultra-deepwater drillers.  They only have one rig operating in the Gulf of Mexico (West Sirius pictured).

http://www.reuters.com/article/2011/03/01/energy-drillers-gulfofmexico-idUSN0113598720110301

Rig type: Semi-submersible

Name: West Sirius

Generation/type: 6th-BE

Built: 2008

Water depth (feet): 10,000

Drilling depth (feet): 35,000

Location: Gulf of Mexico

Client: BP

Current contract: Start – July 2008; Expire – July 2014; Dayrate - $474,000

Previous contract: none

Source: SeaDrill Fleet status report 4Q2010 (http://www.seadrill.com/investor_relations/fleet_update_report )

SeaDrill is paid by BP $474,000 per day regardless if they are allowed to drill or not.  However, oil companies will eventually terminate their contracts with drilling providers (like SeaDrill) if the US government doesn’t issue permits in a manner timely enough to profitably drill for oil.  The good news is that if the US government is slow to issue permits to drill, then SeaDrill is exposed the least amongst the companies mentioned in the article link above.  Transocean (RIG) has the most exposure to the Gulf of Mexico deepwater permit delays.

The West Sirius should bring in $173 million dollars in revenue per year for SeaDrill per its contract with BP.  I couldn’t find the cost to build the West Sirius in a simple Google search.

Most of SeaDrill’s rigs are in Southeast Asia waters.

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http://files.posterous.com/user_profile_pics/697493/v_for_vendetta_guy_fawkes_mask11.jpg http://posterous.com/users/4wuf4tt8LZzb Jason Brizic myhighdividendstocks Jason Brizic
Thu, 24 Feb 2011 17:22:53 -0800 UPDATE - SeaDrill (SDRL) Basic Financial Metrics. http://myhighdividendstocks.posterous.com/update-seadrill-sdrl-basic-financial-metrics http://myhighdividendstocks.posterous.com/update-seadrill-sdrl-basic-financial-metrics

UPDATE - SeaDrill (SDRL) Basic Financial Metrics including 4Q2010 results. 

This high dividend stock has some concerning long term debt loads; otherwise, all other basic financial metric look good.  The company operates 42 oil rigs some of which specialize in deep water drilling.  It has a modern fleet and the company thinks that they will benefit from oil company’s need for safe, reliable drilling in the wake of the BP oil spill.  Keep in mind that all mentions of the trailing 12 months or last 12 months are 1Q2010 through 4Q2010.  SeaDrill reported 4Q2010 and full year results today (February 25th, 2011).

I believe that SeaDrill would be an excellent buy at around $20.00 per share.  The stock price closed at $37.32 today.

Disclosure: I don’t own SeaDrill (SDRL).

Dividend history.  SeaDrill started paying dividends in 2008.  It has steadily increased its dividend for the last few quarters.

1Q2010 dividend =  $0.50 per share; 2Q2010 = $0.60; 3Q2010 = $0.61; and 4Q2010 = $0.65

1Q2011 dividend = $0.675 per share plus a extraordinary dividend of $0.20

Sales per share.  SeaDrill’s sales for trailing 12 months ended 4Q2010 were $4,066,900,000.  At the end of 4Q 2010 there were 443,308,487 shares outstanding.  By dividing $4,066,900,000 by 443,308,487, we get sales per share of $9.17.

Earnings per share. SeaDrill’s earnings per share of $2.64 for the trailing 12 months were calculated by dividing net income (income statement) by outstanding shares (balance sheet).  They earned $1,171,600,000 over the last 12 months.

Dividends per share. By dividing $989,900,000 in dividends paid in the last 12 months by 443,308,487 shares outstanding, we find that Safe Bulkers had dividends per share for the last 12 months of $2.23 per share.

Cash flow per share. The cash flow per share of $3.73 for the last 12 months was calculated by taking net income of $1,171,600,000 and adding back in the depreciation of $479,800,000, which has no impact on cash flow (income statement), and then dividing by the 443,308,487 shares outstanding (balance sheet).

Dividend yield. SeaDrill’s stock had a dividend yield on December 31st, 2010, of 6.57 percent.  The dividend yield is calculated by dividing the annual dividend per share of $2.23 per share at the close of 2010 by the stock price of $33.92.

Now let’s begin our analysis of the ability of SeaDrill to meet its maturing loan obligations and current cash flow needs by computing its liquidity and debt coverage ratios.

Quick ratio

The quick ratio is an important liquidity ratio that is computed by removing inventory from current assets and then dividing by the remainder by current liabilities.  This information can be found on SeaDrill’s balance sheet.  Since inventories are typically the least liquid of a company’s current assets and are likely to produce a loss if liquidated, it is prudent to look at the firm’s ability to cover short-term liabilities without relying on them.  The rule of thumb is that a company with a quick ratio over 1 or better indicates that it could cover all current liabilities with the liquid assets it has on hand, thereby reducing any need to cut its dividend.

SeaDrill’s quick ratio for the last 12 months is 1.15, more than the standard rule of thumb that you would like to see.  The higher the ratio, the better we like the company.  SeaDrill’s quick ratio climbed up to 1.15 from 0.82 at the end of 3Q2010.

Calculation: $2,883,000,000 current assets in 4Q2010 and no inventory divided by $2,514,300,000 in current liabilities in 4Q2010.

Debt coverage ratio

The short-term debt coverage ratio allows you to quickly see if the company’s short-term debt obligations can easily be paid by using the cash that is being generated from company operations.  This ratio is calculated by dividing income from operations ($4,040.8 M) by current liabilities ($2,514.3 M) or short-term debt (balance sheet).  This ratio should equal at least 2.0.

SeaDrill’s short-term debt coverage ratio equals 1.61 for the last 12 months.  This means that the company is generating less than twice the cash flow it needs from operations to pay off all of its short-term obligations.  Taken by itself, this ratio would indicate that the dividend is pretty tenuous and would also indicate that there is insufficient operating income to offset a slightly lower liquidity position if that were indicated by the company’s quick ratio.

Valuation ratios

There are two important ratios that can help you identify companies with good value characteristics.

Price-to-sales ratio. We rank companies with low price-to-sales ratios higher than those companies whose stock is pricey relative to the sales being generated.  You can calculate the ratio by dividing the stock price at the end of 4Q2010 ($33.92) by sales per share ($9.17).  SeaDrill’s price-to-sales ratio for the last twelve months is 3.70, which is not better than our 2.00 rule of thumb ratio that we use to indicate good value.

Price-to-earnings ratio (P/E). Also known as the price-to-earnings multiple, this ratio tells you how expensive the stock is from a price standpoint given earnings that the stock is generating.  Historically, stocks are a good value when the ratio or multiple is below 10, but we consider stocks that have a P/E of less than 12 – the lower the ratio the better.  You can calculate the ratio by dividing the stock’s price by the earnings per share being generated.  SeaDrill’s price-to-earnings ratio for the last 12 months was is 12.85 ($33.92 stock price divided by $2.64 per share).  It is about the higher today (close price on 2/25/2011 of $37.32 divided by $2.64 EPS).

Dividend ratios

Dividend coverage ratio. This ratio shows how secure the dividend is based on the cash flow being generated by the company.  Instead of applying the cash flow to analyze whether the company can meet its debt obligations, we analyze this ratio to assess how easily the company can keep making its dividend payments.  To calculate this ratio, you divide cash flow per share ($3.73) by dividend per share ($2.23).  The higher the dividend coverage from cash flow, the better we like it.

SeaDrill has a dividend coverage ratio of 167 percent.

Dividend payout ratio.
This ratio tells you how much profit the company is paying out to shareholders in dividends.  Once again, the higher the better, so long as the ratio does not exceed 100 percent.  Since a company can only pay dividends from current or retained earnings, it is a warning sign if a company is paying dividends that exceed current earnings.

SeaDrill’s dividend payout ratio is 84.5 percent and is calculated by dividing its dividend per share ($2.23) by earnings per share ($2.64).  We tend to look for companies that have payout ratios of at least 50 percent, which to us indicates that company is committed to rewarding shareholders through dividend payouts.  However, SeaDrill is a very new company (less than 5 years old), so that is a nice dividend payout for such a young company.

Growth ratios

One-year revenue growth ratio.  This ratio measures the one-year percentage change in revenue growth.  It is calculated by subtracting last year’s revenue ($3,325 million) from the current year’s revenue ($4,066.9 million) to find the difference ($741.9 million), and then dividing that difference ($741.9 million) by last year’s revenue ($3,325 million) to find the percentage change.  SeaDrill’s revenue growth rate for 2010 is 22.31 percent indicating that revenue has improved by slightly more than double our 10 percent rule of thumb.

 

One-year earnings growth ratio.  This ratio measures the one-year percentage change in earnings growth.  It is calculated by subtracting last year’s earnings ($1,353.1 million) from the current year’s earnings ($1,171.6 million) to find the difference ($181.5 million), and then dividing that difference ($181.5 million) by last year’s earnings ($1,353.1 million) to find the percentage change.  SeaDrill’s earnings growth rate was negative 13.41 percent in 2010, which is way below than our 10 percent rule of thumb for earnings growth rate.  SeaDrill paid off a significant amount of short term debt and that took earnings growth negative.

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Wed, 23 Feb 2011 08:52:06 -0800 SeaDrill (SDRL) Higher Ahead of Earnings. http://myhighdividendstocks.posterous.com/seadrill-sdrl-higher-ahead-of-earnings http://myhighdividendstocks.posterous.com/seadrill-sdrl-higher-ahead-of-earnings

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Seadrill Higher Ahead of Earnings

Written by Christian Paolinetti   

Wednesday, 23 February 2011 11:03

New York, February 23rd (TradersHuddle.com) - Shares of Seadrill Ltd. (NYSE:SDRL) are trading higher by +0.36% ahead of its quarterly earnings release. Seadrill, the offshore drilling contractor is expected to release its quarterly results on February 24th.

Wall Street Analysts consensus calls for a profit of $0.76 a share on $1.13 billion revenue.

Seadrill estimates have a range of $0.07 a share. The high estimate calls for profit of $0.8 a share and the low estimate is calling for a profit of $0.73 a share, a year ago for the quarter the company reported $0.74 a share.

Seadrill Ltd. (NYSE:SDRL) provides contract drilling services to the oil and gas industry. The Company operates in shallow to ultra-deepwater areas in harsh and benign environments utilizing a versatile fleet, which includes drillships, semisubmersible rigs, jackup rigs, and tender rigs.

Link to original article: http://www.tradershuddle.com/20110223171933/Earnings/seadrill-higher-ahead-of-earnings.html

SeaDrill (SDRL) is a high dividend stock, but it does not have a strong balance sheet.  Its high current liabilities outweigh its current assets (quick ratio).  I will be looking for improvement in the quick ratio in its 4Q2010 earnings report tonight.  Check back for updates later tonight.

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Wed, 16 Feb 2011 13:44:44 -0800 Should you add SeaDrill to your portfolio? Check out its basic financial metrics and 7% yield. http://myhighdividendstocks.posterous.com/should-you-add-seadrill-to-your-portfolio-che http://myhighdividendstocks.posterous.com/should-you-add-seadrill-to-your-portfolio-che

SeaDrill (SDRL) Basic Financial Metrics. 

This high dividend stock has some concerning short term debt loads; otherwise, all other basic financial metric look good.  The company operates dozens of oil rigs some of which specialize in deep water drilling.  It has a modern fleet and the company thinks that they will benefit from oil company’s need for safe, reliable drilling in the wake of the BP oil spill.  Keep in mind that all mentions of the trailing 12 months or last 12 months are 4Q2009 through 3Q2010.  SeaDrill reports 4Q2010 and full year results on February 28th, 2011.

Dividend history.  SeaDrill started paying dividends in 2008.  It has steadily increased its dividend for the last few quarters.

1Q2010 dividend =  $0.50 per share; 2Q2010 = $0.60; 3Q2010 = $0.61; and 4Q2010 = $0.65

Sales per share. SeaDrill’s sales for trailing 12 months ended 3Q2010 were $3,739,400,000.  At the end of 3Q 2010 there were 412,288,216 shares outstanding.  By dividing $3,739,400,000 by 412,288,216, we get sales per share of $9.07.

Earnings per share. SeaDrill’s earnings per share of $3.16 for the trailing 12 months were calculated by dividing net income (income statement) by outstanding shares (balance sheet).  They earned $1,304,600,000 over the last 12 months.

Dividends per share. By dividing $919,500,000 in dividends paid in the last 12 months by 412,288,216 shares outstanding, we find that Safe Bulkers had dividends per share for the last 12 months of $2.23 per share.

Cash flow per share. The cash flow per share of $4.25 for the last 12 months was calculated by taking net income of $1,304,600,000 and adding back in the depreciation of $445,900,000, which has no impact on cash flow (income statement), and then dividing by the 412,288,216 shares outstanding (balance sheet).

Dividend yield. SeaDrill’s stock had a dividend yield on December 31st, 2010, of 6.95 percent.  The dividend yield is calculated by dividing the annual dividend per share of $2.36 per share at the close of 2010 by the stock price of $33.92.

Now let’s begin our analysis of the ability of SeaDrill to meet its maturing loan obligations and current cash flow needs by computing its liquidity and debt coverage ratios.

Quick ratio

The quick ratio is an important liquidity ratio that is computed by removing inventory from current assets and then dividing by the remainder by current liabilities.  This information can be found on SeaDrill’s balance sheet.  Since inventories are typically the least liquid of a company’s current assets and are likely to produce a loss if liquidated, it is prudent to look at the firm’s ability to cover short-term liabilities without relying on them.  The rule of thumb is that a company with a quick ratio over 1 or better indicates that it could cover all current liabilities with the liquid assets it has on hand, thereby reducing any need to cut its dividend.

SeaDrill’s quick ratio for the last 12 months is 0.82, less than the standard rule of thumb that you would like to see.  The higher the ratio, the better we like the company.  It will be interesting to see if SeaDrill’s quick ratio climbs up to 1 when it reports 4Q2010 earnings and balance sheet on February 28th, 2011.

Calculation: $2,587,200,000 current assets in 3Q2010 and no inventory divided by $3,163,300,000 in current liabilities in 3Q2010.

Debt coverage ratio

The short-term debt coverage ratio allows you to quickly see if the company’s short-term debt obligations can easily be paid by using the cash that is being generated from company operations.  This ratio is calculated by dividing income from operations by current liabilities or short-term debt (balance sheet).  This ratio should equal at least 2.0.

SeaDrill’s short-term debt coverage ratio equals 0.48 for the last 12 months.  This means that the company is generating less than twice the cash flow it needs from operations to pay off all of its short-term obligations.  Taken by itself, this ratio would indicate that the dividend is pretty tenuous and would also indicate that there is insufficient operating income to offset a slightly lower liquidity position if that were indicated by the company’s quick ratio.

Valuation ratios

There are two important ratios that can help you identify companies with good value characteristics.

Price-to-sales ratio. We rank companies with low price-to-sales ratios higher than those companies whose stock is pricey relative to the sales being generated.  You can calculate the ratio by dividing the stock price at the end of 3Q2010 ($28.99) by sales per share ($9.07).  SeaDrill’s price-to-sales ratio for the last twelve months is 3.20, which is not better than our 2.00 rule of thumb ratio that we use to indicate good value.

Price-to-earnings ratio (P/E). Also known as the price-to-earnings multiple, this ratio tells you how expensive the stock is from a price standpoint given earnings that the stock is generating.  Historically, stocks are a good value when the ratio or multiple is below 10, but we consider stocks that have a P/E of less than 12 – the lower the ratio the better.  You can calculate the ratio by dividing the stock’s price by the earnings per share being generated.  SeaDrill’s price-to-earnings ratio for the last 12 months was is 9.17 ($28.99 stock price divided by $3.16 per share).  It is about the same today.

Dividend ratios

Dividend coverage ratio. This ratio shows how secure the dividend is based on the cash flow being generated by the company.  Instead of applying the cash flow to analyze whether the company can meet its debt obligations, we analyze this ratio to assess how easily the company can keep making its dividend payments.  To calculate this ratio, you divide cash flow per share by dividend per share.  The higher the dividend coverage from cash flow, the better we like it.

SeaDrill has a dividend coverage ratio of 191 percent.

Dividend payout ratio.
This ratio tells you how much profit the company is paying out to shareholders in dividends.  Once again, the higher the better, so long as the ratio does not exceed 100 percent.  Since a company can only pay dividends from current or retained earnings, it is a warning sign if a company is paying dividends that exceed current earnings.

SeaDrill’s dividend payout ratio is 70.6 percent and is calculated by dividing its dividend per share ($2.23) by earnings per share ($3.16).  We tend to look for companies that have payout ratios of at least 50 percent, which to us indicates that company is committed to rewarding shareholders through dividend payouts.  However, SeaDrill is a very new company (less than 5 years old), so that is a nice dividend payout for such a young company.

Growth ratios

I’m not going to calculate the growth ratios until SeaDrill releases 4Q2010 earnings on February 28th, 2011.

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Tue, 01 Feb 2011 13:37:33 -0800 Do You Need an Oil Stock for Your High Dividend Stock Portfolio? http://myhighdividendstocks.posterous.com/do-you-need-an-oil-stock-for-your-high-divide http://myhighdividendstocks.posterous.com/do-you-need-an-oil-stock-for-your-high-divide

SeaDrill (SDRL) caught my eye as a high dividend stock.  This deep water oil drilling company currently yields 7.54%.  It paid over $0.60 for the past three quarters.  However, it only has a three quarter dividend record.  Time will tell if this stock will be a reliable dividend payer.

Here is the description from Google Finance:

SeaDrill Limited is a Bermuda-based company active within the oil and gas industry. Its activities are of an offshore drilling contractor. The Company operates a fleet of 36 offshore drilling units, including eight units under construction, which consist of 10 jack-up rigs, 10 semi-submersible rigs, four drillships and 12 tender rigs. It operates three business segments. The Mobile Units business segment offers services including drilling, completion and maintenance of offshore wells. The Tender Rigs business segment operates self-erecting tender rigs and semi-submersible tender rigs. The Well Services business segment provides services using platform drilling, facility engineering, modular rig, well intervention and oilfield technologies. SeaDrill Limited operates through subsidiaries in Bermuda, Norway, Cayman Islands, British Virgin Islands, Cyprus, Nigeria, Liberia, Hungary, Singapore, Brazil, Hong Kong, Panama, the United Kingdom, Denmark, Malaysia, Brunei and the United States.

This stock’s price will correct when the price of oil corrects.  A continuation of the global recession, government debt crisis, and or a busting of China’s real estate and construction bubble will cause the price of oil to go down.  War with Iran (coupled with Iranian government sinking of oil tankers in the Straits of Hormuz), Keynesian money printing, large oil spills (Gulf of Mexico), and commercial banks resuming lending like in 2006 will all lead to higher oil prices.

The P/E is reasonable at 12.06.  Debt is less than 50% of assets.  I will analyze earnings and balance sheet in great detail in the future.

If you can’t wait for my analysis of their earnings power and strength of their balance sheet, then wait for this stock to pull back to below $20.00 per share like in May through July 2010.

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