Seeking Alpha
Long/short equity, value, growth at reasonable price
Profile| Send Message|
( followers)  

Seadrill (NYSE:SDRL) just announced it would be paying two quarterly dividends this month in a move meant to counter rising taxes on dividends for 2013. Seadrill is known for its dividend payouts and high yield of 9%. Even though Seadrill is the leader in its respected industry, many investors are still skeptical of it. The debt load seems to be a concern for some, but the safety of the dividend payout is another as well. Today we'll look at Seadrill's dividend payouts, growth and potential.

Seadrill has had a remarkable payout rate since reinstating its dividend in November of 2009. During the financial meltdown of 2008, Seadrill was forced to cut its dividend -- down to nothing. But I'm not trying to sell the fact that Seadrill has a long history of consistent dividend payouts like Coca-Cola (NYSE:KO) or McDonald's (NYSE:MCD). Instead, I want to illustrate Seadrill's dividend payout over the last several years as well as how much it has changed.

(click to enlarge)

Source: Stockcharts.com

Seadrill first suspended its dividend payouts in 2008, when it paid out $.90 and went ex-dividend on September 4th and September 22nd. It wasn't until it went ex-dividend on November 23rd of 2009, over a full year later, when it paid out $.50 and began to resume dividend payments. Since that first reinstatement, Seadrill has not missed a dividend payout. Below is a chart illustrating the annual dividend payment from 2008-present:

*2012: In December of 2012, Seadrill made next quarter's (March 2013) dividend payment early, to avoid potentially higher tax rates from the 'Fiscal Cliff.'

As you can see on the chart above, Seadrill's annual dividend payout took a large hit from the 2008 turmoil, which mainly effected the payouts made in 2009. But since then however, Seadrill's dividend has been increasing at an exceptional rate. Below is a chart displaying the annual percentage change in Seadrill's dividend payouts:

Year

Annual Dividend Payout

Change From Previous Year ($)

Change From Previous Year (%)

2008

$1.75

N/A

N/A

2009

$.50

-$1.25

-71.5%

2010

$2.41

+$1.91

+382%

2011

$3.14

+$.73

+30.3%

2012*

$4.31

+$1.17

+37.25%

*2012: In December of 2012, Seadrill made next quarter's (March 2013) dividend payment early, to avoid potentially higher tax rates from the 'Fiscal Cliff.'

As the chart above depicts, the dividend growth has fluctuated in extreme measures. For instance, the jump from 2009 to 2010 was over 380%. This was due to the suspended dividend payouts as discussed earlier. In 2012, the dividend increased by 37%, but if you don't include the early $.85 payout, the increase is only 10.2%. In my opinion, this is still a healthy increase because it shows that Seadrill is remaining somewhat more conservative, while still raising the payout and returning cash to shareholders. Could Seadrill increase the dividend by 30%, 40% or 50% per year? Probably for a little bit, but eventually this payout would become unsustainable and ultimately reduced.

A look at the quarterly dividend yields a better look at how the increases have progressed. Lets look at the chart below, illustrating this growth from 2009-present with the cash dividend amount on the left and the corresponding quarter on the bottom, before discussing it in more detail:

As you can see above, Seadrill has been able to manage a steady dividend increase over the last three years. This is a great thing to see as a shareholder, along with the special dividend payouts in 2011 and 2012, visible by the red bar.

Furthermore, when you analyze the chart with more detail, you will see that not only has Seadrill not reduced the dividend payout, but actually increased it 12 out of the last 13 quarters. The only time it did not increase was from Q2 to Q3 in 2011, when the payout remained unchanged at $.75. Below is a chart, showing the percentage change between quarters from the period of 2009-present and excludes special dividends:

Year

Quarterly Dividend Payout

Change From Previous Payout ($)

Change From Previous Payout (%)

2009

$.50

-.10

-16.67%

2010

$.55

+.05

+10%

2010

$.60

+.05

+9.09%

2010

$.61

+.01

+1.6%

2010

$.65

+.04

+6.55%

2011

$.68

+.03

+4.6%

2011

$.75

+.07

+10.3%

2011

$.75

Unchanged

Unchanged

2012

$.76

+.01

+1.3%

2012

$.80

+.04

+5%

2012

$.82

+.02

+2.5%

2012

$.85

+.03

+3.7%

I think that Seadrill is entering a strong bull market it in its respected industry. In November I wrote an article highlighting some of those bullish points, one of them being a strong dividend. It's not something that fits in every investors portfolio, but I think Seadrill has a strong balance sheet, despite the large debt load it carries. They have secured enough future contracts to solidify future revenues, which in my opinion, will secure the dividend. I expect the dividend to continue increasing both annually and quarterly, so if anything, having a secure 9% yield in your portfolio is always a plus.

Disclosure: I am long SDRL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Seadrill: A Deeper Look At Its Dividend Ability