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Added SDRL this a.m. @$39.52. Have waited a good while for it to drop back under $40. Just a glance at the chart makes it appear to be trading near the bottom of a channel. Then again, does it bounce back or does it continue to fall through support? These shares were bought in my buy and hold account, so as long as the operation appears sound, I'll likely hold with the expectation of slow accumulation.
Yield is just south of 10%. Fast growing player in deep sea drilling fleet. Has a diversified array of assets. Rapid growth over the past three years, accompanied by sharp increases in the dividend over the period. IMO not a conservative investment, but offers a good balance between risk and reward.
Alex
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02-25-2014, 10:11 AM
(This post was last modified: 02-25-2014, 10:25 AM by hendi_alex.)
On Jan 31, I exited the SDRL position mention above. The price action just looked too lousy plus lots of bad press at the time. A few days ago it looked to me like the price had stabilized, so a GTC order was placed @$35.75. Since then the price moved up a couple of dollars, but after the quarterly release, have dropped back down today and the order filled. The company made a ton of cash and raised the dividend, but also gave weaker than predicted future guidance. I'll continue to hold this time, as the 11% dividend is likely secure with SDRL's long term charters and likely give some support to the share price.
Discussion of SeaDrill on another board prompted this post from me, which is copy and pasted below.
One thing that many of us tend to ignore is the fact that this entire business [platform lease] is based upon a fleet of depreciating assets which have a finite useful life. Because SeaDrill has a fairly young fleet, investors will probably be insulated from this fact for a number of years. Just to make the idea simple, lets look at a 'fleet' of a single platform. Over the life of that platform, investors must recoup cost basis plus turn a profit. In the end, the platform is worth nothing but scrap! The process of recouping cost plus profit is complicated by off charter time and down time as well as incurred maintenance costs[unpredictable charter rates at renewal time also represent a major difficulty]. So while the dividends appear high, one must consider the fact that a major portion of that cash flow represents ROC. Also, while SDRL is now a fairly large player with a very young fleet, in just a few years it will have a fairly large older fleet and will lose much of its competitive advantage that comes form these fairly new built platforms. In my view, owning shares of a platform lease company is not that different from owning shares of a shipping company or of holding shares of U.S. energy trust.
I like the cash flow and long term leases of SDRL, but am nervous concerning their amount of leverage/debt and other longer term aspects of the business/industry. This certainly appears to fit the profile of a highly cyclic boom and bust type of business.
Anyway, for me, all of this means to keep the weighting manageable, avoid a buy and hold mentality, and keep a close eye on fundamentals of the sector.
Alex
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I re-opened a small position in SDRL today.
Good discussion on the dividend investing for retirement thread on SI, featuring a poster who has worked in the industry for decades.
