Is there room in your portfolio for dividend champions offering income over 10%?
The orderly decline in stock markets is also hurting companies that offer high dividends. The adage that higher interest rates make income investments less attractive might be true. Yet rates are unlikely to rise quickly or at all, at least in the short term. The decline in income stocks is also boosting dividend yields.
Seadrill (SDRL) peaked at $47.78 last year in October. Its reported dividend rate (in the chart below) is 11.1%. Since boosting its dividend to $0.98 per share quarterly, the yield is actually 11.8%.
Seadrill said in its last quarterly conference call that it would commit to maintaining a yield dividend payout. Any excess cash will be used to reduce debt or for conservative exploration projects.
Seadrilll recently sold 230 million shares in SapuraKencana and will release $165 million from the sale.
North Atlantic Drill Ltd. (NADL) is majority owned by Seadrill. Its shares yield a dividend in the double digits. The firm is adding new rigs to its fleet, which will help its cash flow. Investors are concerned NADL has an unmanageable debt level, but the company can reduce its dividend payout, if needed.
Transocean Ltd. (RIG) is set to raise its dividend above the current 5.4% rate. The dividend is expected to rise to $3, which implies a yield of 7.6%.
In the drilling sector, Awilco Drilling (AWCLF) offers a dividend yielding over 20%. The firm has a healthy backlog, and insider ownership is very high. The firm recently issued $125 million worth of secured bonds that mature in April 2019. Risks of downside lie in commodity price risks and material risks of a rig breaking down. Awilco does have insurance should the latter scenario occur.
Disclosure: Author holds shares in SeaDrill.
Written by Chris Lau.
Click on the interactive chart to view data over time.
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- SeaDrill Limited(SDRL, Chart, Download SEC Filings)
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