Seadrill: What Dividend Danger?

Seadrill (SDRL) with a lower dividend would be akin to watching the Door’s play without Jim Morrison. Sure, you might pay something for the experience, but how much really? In fact, uncertainty regarding Seadrill’s dividend is one of the reasons its lost 20% during the past three months, more than Ensco (ESV), Rowan (RDC) and Atwood Oceanics (ATW), which have lost between 12% and 16% during the same time period. Morgan Stanley’s Ole Slorer and Jacob Ng, however, tell investors they shouldn’t worry about Seadrill’s dividend. They explain why:

"[Seadrill's] dividend has been its key differentiator over the years, and we still see room for further growth as EBITDA ramps. Yet, [Seadrill] has sold off lately as investors hone in on its high leverage and ability to bridge a large funding gap amidst near-term industry headwinds. We are nevertheless confident in [Seadrill's] ability to bridge this funding gap through asset backed financing while contract backlog continues to provide near-term cash flow visibility…We see an attractive entry point with [Seadrill] trading at a compelling ~11% yield…"

Source: Baron's

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