12-15-2014, 11:57 AM
(12-15-2014, 11:34 AM)hendi_alex Wrote: Very few businesses that pay out the majority of cash flow are ever growth plays (perhaps some property REITs and some MLPs are exceptions). For most however, dividends are not something that continuously grow. They adjust the dividend based up free cash flow that is available to share holders. So a dividend cut or elimination is nothing new to these kinds of operations. If SDRL survives, it will begin to pay out cash flow as dividends once again. An investor should not pay much attention to yield or to dividend growth with any of these kinds of businesses. The dividends are transient, and just because there is steady dividend growth over a period of several years of good business climate, that doesn't imply that the dividends will not get cut or eliminated when the business climate weakens. In fact that is almost a certainty.
So I'm buying into the energy sector as a value play, with the assumption that when dividends resume, the positions will kick out significant cash flow. OIH has been bought as more of a value/recovery play and will likely be sold if the price recovers to perhaps 80% of yearly highs.
Last year, I bought TNK at two dollars and change because fundamentals of the shipping industry were improving. Since then shares have surged to almost $6. The dividend has not been increased yet because the company is using the extra cash flow from strong day rates to pay down debt and better position the company. When they are satisfied with that process, dividends will sky rocket until the sector once again get flooded with excess capacity. That kind of cycle is always true with these kinds of investments. The trick is to pick survivors, as many fail to b.k. during the down cycles. IMO most of the potential plays represented in this diverse group are not compatible with DG investing, but should played or viewed as being outside of that portfolio.
I'd be careful in assuming that SDRL has any meaningful dividend in the next couple years. Case in point are some of the dry bulk shipping stocks that were riding high prior to the Great Recession and paying tremendous dividends. They were all cut during the washout and few if any have reinstated dividends, let alone returned them to previous levels.
Why not play it with the integrated companies that are paying 4-5% at current levels rather than speculating on a rebound from the deep sea drillers? I'll take my chances with an A or AA rated COP, OXY or CVX paying 4%+ rather than taking my chances with a highly indebted SDRL on hopes that oil will return to $100 levels anytime soon.