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  • Awilco Drilling sports an 18.32% dividend yield.
  • Awilco Drilling has grown its dividend substantially.
  • Awilco Drilling still represents the world's most compelling value.

When I first wrote about Awilco Drilling (OTCPK:AWLCF) on October 23, 2013, it was yielding 19.77% and selling at $20.23 per share. Currently, Awilco's stock sells at $25.10 and yields 18.32%. The company still sports one of the world's best dividend yields, because its board has increased dividends from $1.00 per share quarterly when I first wrote, to $1.10 quarterly, and then $1.15 per share quarterly. It is an outstanding performance.

As my longtime readers know, I am a huge fan of CEO Jon Oliver Bryce and CFO Brian Wilson, whom I met with in Aberdeen, and I greatly admire 49% shareholder Arne Wilhelmsen, a longtime family friend, and his executives Sigurd Thorvildsen and Henrik Fougner whom I met with in Oslo late last year. I highly recommend that investors listen to Jon Oliver Bryce and Brian Wilson on conference calls. They are extremely shrewd, rational, and conservative. My bottom line is that Awilco Drilling has a top flight management team, backed by Arne Wilhelmsen, the Warren Buffett of Norway. The Wilhelmsen family has a history excellence, with deep roots in shipping and energy, and Awilco Drilling is a continuation of that track record.

As I first wrote, "Awilco Drilling's mispricing in the market should not, and in my view, will not continue. And indeed, the best kind of mispricing of a company exists, when the company suffers from benign neglect, rather than controversy." Recently, the company has just started to get the attention in the United States that it deserves. As investors become more familiar with the company, I believe that the recent appreciation in its stock price will accelerate.

Awilco Drilling has a philosophy which is unique in the business world--the company believes it should actually reward shareholders with the lion's share of the company's cash flow in the form of massive dividends. Imagine that--a company which pays out its free cash flow to its owners.

How will this all play out? Awilco currently sells for 4.79X EV/EBITDA. With higher rig rates contractually guaranteed going forward, I estimate that the true EV/EBITDA could actually be much lower. I believe the company will eventually be acquired by a company such as the newly formed Paragon Offshore, which specializes in older rigs, or a private equity firm. In the meantime, investors can feast on the meaty dividend.

As I have often said, the company sports the best form of idiosyncratic yield in the world, uncorrelated to bond interest rates--literally cash paid for drilling services.

Even though the company only has two rigs, those rigs will represent prized diversification for an acquirer which wants to feast on North Sea business, which has the highest rig utilization in the world.

It will be fun to see how this all plays out. So far, the performance has been spectacular.

Editor's Note: This article discusses one or more securities that do not trade on a major exchange. Please be aware of the risks associated with these stocks.

Source: Awilco Drilling Is Still The World's Most Undervalued Company

Additional disclosure: Harry Long is a Senior Advisor to the private equity firm Fort Ashford Holdings. Fort Ashford Holdings and/or its principals own Awilco stock.