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How Seadrill Partners Is Navigating Its Industry's Rough Waters

PART:
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Part 5
How Seadrill Partners Is Navigating Its Industry's Rough Waters PART 5 OF 7

Seadrill Partners Maintains Its Distributions, Has a Yield of 11%

Dividends

During the industry downturn, most offshore drillers have suspended their dividend distributions to preserve cash. Seadrill Partners (SDLP) has cut its dividend several times, but it continues to pay dividends.

In 3Q16, Seadrill Partners maintained the same dividend as in the previous quarter. In 2Q16, the company announced a dividend cut. In 3Q16, it declared a dividend of $0.10 per share, equivalent to an annual distribution of $0.40. This was the same as in the previous quarter but lower than 1Q16’s distribution of $0.25 per share.

Seadrill Partners Maintains Its Distributions, Has a Yield of 11%

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Distribution coverage

Seadrill Partners’ distributable cash flow was $105.2 million in 3Q16, compared to $99 million in 2Q16. In 3Q16, SDLP’s coverage ratio was ~13.98x, compared to its 2Q16 coverage ratio of ~13.1x.

A company’s coverage ratio is its distributable cash flow as a percentage of its distribution. The coverage ratio is a measure of a company’s ability to pay its dividends. A higher ratio is generally a healthy sign. A ratio of less than 1 indicates that a company’s cash flow is less than its dividends paid, which may also indicate that its current level of dividends isn’t sustainable in the long term.

Dividend yield

Seadrill Partners’ current dividend yield is ~11.4%, one of the highest in the offshore drilling industry (XLE). Its peers have the following dividend yields:

  • Noble (NE): ~1.4%
  • Ensco (ESV): 0.47%

Diamond Offshore (DO), Transocean (RIG), and Atwood Oceanics (ATW) have suspended their dividend distributions.

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