High Dividend Stocks — Transocean (RIG)
Market Cap: $14.5 billion
Dividend Yield: 5.6%
Sector: Oil & Gas Exploration
Oil stocks haven’t really been all that kind to investors over the last few years as weak pricing coupled with weaker energy demand in emerging markets has hurt the bottom line.
But one sector I’m bullish on going forward are deepwater drillers, including leader Transocean (RIG). The bottom line is that the world’s easy oil is gone and that integrated oil companies like Exxon (XOM) are increasingly turning to harder-to-access deepwater fields in order to bolster reserves.
There are risks, obviously, as we saw with the Gulf of Mexico oil spill. But RIG stock has stabilized after that 2011 disaster and has reinstated its dividend at a hefty 5.6% yield. Furthermore, the dividend payout is less than half of fiscal 2014 earnings, so future increases are likely.
As for valuation, Transocean now trades for about 8.5 times forward earnings. That’s roughly half the 15.5 forward P/E for the broader S&P 500. Dividend stocks with cheap P/E ratios are hard to beat.
Sure, Transocean continues to see weak drilling demand (and subsequently weak revenue) in the short-term. But Transocean remains a leading deepwater driller and offshore oil will remain a big part of the global energy picture for decades to come.
After dropping precipitously from its 2011 highs, the negativity has been priced in — and even if RIG stock moves sideways for a bit, the hefty 5.6% yield will keep your portfolio strong.