Stocks to Buy #3: Seadrill (SDRL)
Click to Enlarge Seadrill (SDRL) has made headlines lately, and not for the right reasons. Weak guidance, falling day rates, lower capex by the oil majors and analyst downgrades are all issues that have been weighing on SDRL stock. Since hitting a peak near $48 in September, the stock is off almost 22% — and that’s with its hefty double-digit dividend thrown into the mix.
Nevertheless, Seadrill remains a well-managed company with a large order backlog and a forward dividend yield of 10.6%. (This assumes 98 cents for the next four quarters on a $37 price). The company has said it will consider slowing the rate of dividend growth, but an outright cut doesn’t appear to be in the cards.
Seadrill isn’t a clean story, and the stock could remain volatile as long as concerns about day rates persist. Still, this is a chance to get a double-digit yield from a company that will benefit from growing demand for deepwater drilling capacity in the years ahead — and to do so at a depressed price. After its recent selloff, it’s time to give SDRL stock another look.