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Oil and gas drillers are among the top dividend paying stocks. As the global demand for energy keeps increasing, the demand for oil and gas drillers are also on the rise. Most stocks in this field offer safe dividends, which makes them perfect for retirement portfolios. Compared to the low yield fixed-income assets, these stocks offer a much higher income per investment.

Here, I compiled a list of five dividend drillers that pay regular dividends. The liquidity criterion is set as a minimum average volume of about one million shares per day. All of these companies offer a minimum trailing yield of 5%. I also calculated the payout ratios based on the cash flow, as the payout ratio based on earnings can be misleading in the case of oil and gas drilling stocks. Here is the top dividend driller list:

Markwest Energy Partners (NYSE:MWE)

  • Trailing Yield: 6.80%
  • Payout Ratio Based on Cash Flow (Yield/Cash Flow): 78.9%
  • Forward Yield: 6.97%

Denver, Colorado-headquartered Markwest is established in 1988. Markwest is best known as a natural gas transporter which owns and operates pipelines that stretch all the way from Gulf Coast to NorthEast. The company also owns a crude oil transportation pipeline in Michigan. The company operates as a master limited partnership.

MLPs are among the top dividend payers in the market thanks due their favorable tax status. These stocks offer substantial distributions to their shareholders. Markwest is no exception. The company has a trailing yield of 6.80%. In this year, it increased its quarterly cash distributions to 81 cents from 76 cents. Thanks to the dividend hike, the forward yield stands at 6.97%

How Safe Is The Dividend?

Based on the trailing earnings the payout ratios stands at 292%. That is an obvious red sign for any dividend investors. However, one needs to dig deeper to see how safe the dividend is. Based on the P/CF ratio of 11.6 the trailing payout ratio based on cash flow stands at 78.9%. In the last four quarters, the company generated an operating cash flow of $473 million. That is more than enough to cover the total dividend payment of $329 million. The current cash surplus of $415 million also provides an additional layer of safety for the dividend. Therefore, the dividends are not only safe, but they also have substantial room for growth.

Enerplus Corporation (NYSE:ERF)

  • Trailing Yield: 13.87%
  • Payout Ratio Based on Cash Flow (Yield/Cash Flow): 35.3%
  • Forward Yield: 8.83%

Based on Calgary, Enerplus is one of the largest oil and drillers in Canada. The company is established in 1986. It primarily engages in exploration and development of crude oil and natural gas in the U.S. and Canada. Enerplus did not perform well this year. The stock lost almost half of its value since January.

Enerplus pays a monthly cash dividend to its shareholders. This year, the company cut its monthly dividends by 50% due to weak commodity prices. At the moment, the company pays a monthly dividend of 9 Canadian cents per share.

How Safe Is The Dividend?

After the dividend cut, the company's forward yield collapsed to 8.83%. This is still a very high yield compared to the rest of the industry. Based on the P/CF ratio of 4 the trailing payout ratio based on cash flow stands at 35.3%. In the last four quarters, the company generated an operating cash flow of $1.718 billion. That is more than enough to cover the total dividend payment of $332 million. While the company does not have much cash, the operating cash flow seems strong.

Enerplus is also trying to improve its operations by focusing more on crude oil and selling non-core assets. Due to the asset sales and a decrease in capital spending, free cash flows will increase for the company. As a result, the firm should be able to maintain its dividends.

Penn West Petroleum (NYSE:PWE)

  • Trailing Yield: 10.2%
  • Payout Ratio Based on Cash Flow (Yield/Cash Flow): 4.1
  • Forward Yield: 10.2%

Based on Calgary, Penn West is also among the largest oil and drillers in Canada. The company is established in 1979. It mostly engages in exploration, production and development of crude oil and natural gas properties and related assets in Western Canada. Similar to Enerplus, Penn West did not perform well this year. The stock lost about forty percent of its value since January.

How Safe Is The Dividend?

Penn West pays nifty dividends to its shareholders. Its dividends stayed flat this year. At the moment, the company pays a quarterly dividend of 27 Canadian cents per share. Similar to its competitor, Enerplus, Penn West also suffered from low natural gas prices. In the past, the company used to pay monthly dividends. However, since 2011, Penn West pays quarterly dividends. The current yield is above 10%, primarily due to the sharp decrease in stock price. With a P/CF ratio of 4.1, the trailing payout ratio based on cash flow stands at 41.2%. In the last four quarters, the company generated an operating cash flow of $1.236 billion. That is more than enough to cover the total dividend payment of $398 million. While the company does not have much cash, the operating cash flow seems strong. The company spent about $2 billion in investment related activities. Once these activities start generating more cash flows, the shareholders might even see dividend hikes in future.

SeaDrill (NYSE:SDRL)

  • Trailing Yield: 8.4%
  • Payout Ratio Based on Cash Flow (Yield/Cash Flow): 82.8%
  • Forward Yield: 8.8%

Based in Bermuda, SeaDrill stands at the forefront of the drilling industry. Since its establishment in 1972, the company has gathered extensive knowledge in drilling and well services. This long-term experience in the field provides a strong comparative advantage. Through its subsidiaries, SeaDrill has already expanded its operations into 15 countries around the globe, and continues to grow every day. The company holds a versatile fleet of units, including semisubmersibles, deepwater drillships, jack-ups, semi-tender rigs and tender rigs.

How Safe Is The Dividend?

SeaDrill is among my favorite dividend drillers. The company just keeps rising its dividends. Thanks to its strong business prospects, SeaDrill was able to almost double its dividends in the last four years. The current quarterly dividend of 84 cents per share translates into a forward yield of 8.8%. The trailing P/E ratio of 22 implies that the stock is a bit expensive compared to its peers. However, the payout ratio based on cash flow suggests that the dividends are safe. Offshore drilling activities are on the rise. As the demand for SeaDrill's drillers keep rising, the stock is likely to reward the shareholders with increasing dividends.

Pengrowth Energy Corporation (NYSE:PGH)

  • Trailing Yield: 13.98%
  • Payout Ratio Based on Cash Flow (Yield/Cash Flow): 35.6%
  • Forward Yield: 6.36%

The last stock on the list is Pengrowth Energy. Pengrowth is another driller headquartered in Calgary, Canada. The company primarily operates as crude oil and natural gas explorer in North America. As of the December 2011, it has total proven and probable reserves of 330 million barrel of oil equivalents.

The stock follows a volatile movement pattern. Following its Canadian peers, Pengrowth lost almost 50% of its market value in this year alone. Currently, it is trading somewhere at the lower end of its 52-week trading range.

Pengrowth Energy also pays a monthly cash dividend to its shareholders. Recently, the company cut its monthly dividends from the previous monthly installment of 7 Canadian cents to 4 Canadian cents.

How Safe Is The Dividend?

After the dividend cut, the company's forward yield collapsed to 9.36%. This is still a very high yield compared to the rest of the industry. Based on the P/CF ratio of 3.8 the trailing payout ratio based on cash flow stands at 35.6%. In the last four quarters, the company generated an operating cash flow of $551 million. That is more than enough to cover the total dividend payment of $299 million. This year the company earned $416 million by issuing additional shares. I think the stock will reward the shareholders handsomely once the share dilution affect disappears.

Source: 5 Dividend Drillers For Your Retirement Portfolio