Measured by market cap, Seadrill is the world’s largest offshore drilling company, and it is part of the empire of shipping magnate John Fredriksen, who also controls Frontline Ltd. (NYSE: FRO), among other shipping firms.
The company told investors that Seadrill’s $1 per share dividend (dividend yield of 11.1%) is safe at least through the end of 2016, but shares dropped in Wednesday morning’s premarket on a weak outlook statement:
After a year with very few fixtures we have started to see some increased tendering activity, however this has not influenced dayrates, where the trend is still negative. 2014 and 2015 will be challenging years; however Seadrill Group has only one unit currently without and only 14 rig years uncommitted for 2015 out of a total fleet of 57 rig years, which translates to 76% contract coverage. … The current weakening of the market caused by the oil companies cash flow situation may create interesting opportunities to acquire rig assets and companies. Seadrill will evaluate these opportunities on a case by case basis. However, it should be stated that Seadrill’s strong focus on maintaining dividend capacity and on modern assets clearly limits potential targets.
Maintaining the dividend at the expense of growth is usually not a smart thing, but because demand for drilling rigs is not expected to pick up, there is little reason for Seadrill to spend on expansion. Paying the high dividend could well be the best use of the company’s profits.
Seadrill noted that the market for ultra-deepwater rigs remains challenging and the reductions are driven by a slowdown in exploration spending. This is one impact of lower crude oil prices — producers leave the oil in the ground where storage is free until the price of crude rises. If demand continues to slacken and prices remain low, Seadrill and other companies like it have a tough few years ahead.
Seadrill’s shares were down about 4.7% in premarket trading, at $35.92 in a 52-week range of $32.40 to $48.09. The consensus price target from Thomson/First Call is $40.50.
ALSO READ: The 10 Most Oil-Rich States
The Average American Is Losing Their Savings Every Day (Sponsor)
If you’re like many Americans and keep your money ‘safe’ in a checking or savings account, think again. The average yield on a savings account is a paltry .4% today, and inflation is much higher. Checking accounts are even worse.
Every day you don’t move to a high-yield savings account that beats inflation, you lose more and more value.
But there is good news. To win qualified customers, some accounts are paying 9-10x this national average. That’s an incredible way to keep your money safe, and get paid at the same time. Our top pick for high yield savings accounts includes other one time cash bonuses, and is FDIC insured.
Click here to see how much more you could be earning on your savings today. It takes just a few minutes and your money could be working for you.
Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.
Latest from 24/7
