The hunt for yield has taken investors into the furthest reaches of the market. A few years ago, nobody had ever heard of preferred stocks. Now they are all the rage. Business development companies (BDCs) were mysterious investments, and now capture the imaginations of high-yield investors. Unit royalty trusts sounded like exotic vehicles, but are now regarded as portfolio income mainstays.

Another game some companies play is the “special dividend.”

Special dividends are one-time payments typically used to reward shareholders with excess, extraordinary cash — money garnered from asset sales or boffo quarterly profits. We saw many of these last year, as companies rushed to push out extra distributions before the dividend tax rate went up in 2014.

However, a few companies line investors’ wallets with a special dividend on a regular basis.

One such company exists in a sector I love — energy. Oil is a fixture of the human experience, so well-run energy companies are always attractive plays to me.

Diamond Offshore – Master of the Special Dividend

Diamond Offshore Drilling (DO) is both a well-run energy company, and a company that pays a special dividend consistently — DO stock has done so since 2006, in fact.

Diamond Offshore has taken some criticism for having an older fleet of oil drilling equipment, yet its present fleet generates great revenues and cash flow, and it still throws off a lot of cash to investors.

You might expect an oil driller to have a ton of debt, but Diamond only carries $2.5 billion in debt, which last year only cost it about $25 million in debt service. This debt also is offset by about $1.6 billion in cash, and with a net-debt-to-market cap ratio of only 3%. In this regard, DO stock is in vastly better shape than competitors, who are seeing ratios of 26% up to 49%.

While free cash flow has been falling in recent years, Diamond Offshore is likely to see that increase as the Gulf of Mexico drilling ban has been lifted. The prospect of rising day rates and a move into South American and West African oceans also bodes well for DO stock. Day-rate increases were also reported in Q1 results from peers Ensco (ESV) and Seadrill (SDRL).

And as for that dividend…

DO stock has paid a regular dividend of 12.5 cents per quarter that has been rigorously consistent since 2005. Beginning in 2006, and running through 2010, special dividends ranging from $1.50 to $7.50 per share were issued each year. In 2011, and ever since, a 75-cent special quarterly dividend has been paid. Thus, the total annual payout is $3.50, or about 7% at today’s DO stock price — a heck of a lot better than the headline 1% yield it boasts based on the more-or-less “promised” dividends.

There’s some concern that, as free cash flow was barely positive in 2013, that the special dividend might not survive. I’m not so sure about that. While the company is paying about $490 million each year in dividends, the operating cash flow is robust, and there is cash on hand. The confirmation of rising day rates is encouraging, and Diamond has been in worse situations.

Sentiment on the stock is weak, with DO stock trading some 30% off its 52-week high of $73. There have been three small insider purchases in the past six months, and almost no insider sales. These are good signs.

Bottom line: You can’t find good yield just anywhere. Diamond has its potential risks, but it has built up an unusual amount of trust around its special dividend. DO stock might just be a steal for that reason alone.

As of this writing, Lawrence Meyers did not hold a position in any of the aforementioned securities. He is president of PDL Broker, Inc., which brokers financing, strategic investments and distressed asset purchases between private equity firms and businesses. He also has written two books and blogs about public policy, journalistic integrity, popular culture, and world affairs. Contact him at pdlcapital66@gmail.com and follow his tweets at @ichabodscranium.