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Helmerich and Payne’s Dividends: Key Drivers

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What drove operating revenue?

Helmerich and Payne (HP) is involved in drilling oil and gas wells for exploration and production companies. Its operating revenue fell 49% in 2016 before growing 11% in 2017. The fall in 2016 was due to lower revenue from the Drilling – U.S. Land, Offshore and International Land segments. The growth in 2017 was driven by Drilling – U.S. Land and Others, offset by the rest of the segments. US land rig activity drove growth in 2017 despite oil price uncertainty and volatility.

Operating revenue grew 53% in 1Q18, driven by Drilling – U.S. Land and Others and offset by the rest of the segments.

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What led to the decline in EPS?

Operating costs and expenses fell 34% in 2016 before rising 20% and 34% in 2017 and 1Q18, respectively. Costs and expenses also included income from asset sales. As a result, operating income turned negative in 2016 and 2017 before some recovery in 1Q18. Interest expenses rose 53% in 2016 and fell 14% in 2017. Expenses rose again by 14% in 1Q18. 2016 recorded a significant loss on investment securities, which led to negative adjusted earnings and EPS (earnings per share) for 2016, 2017, and 1Q18.

How did the dividend yield and price perform?

The dividend yield for the company fell in 2016 before regaining some of the loss in 2017. The drop in 2016 was due to flat dividend growth and higher price gains. 2017 saw slight growth in dividends and price loss, which led to growth in the dividend yield. The company managed to generate enough free cash flow in 2016 to pay off its dividends.

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Drivers

Continual demand for high-capacity super-spec rigs and the nearly full utilization of that portion of the US fleet are expected to drive rig prices. Acquisitions of Motive Drilling Technologies and MagVAR should further support the company in consolidating its position.

Stacking up against the broad indexes

A dividend yield of 3.9% compares to a sector average dividend yield of 2.1%. The SPDR S&P 500 ETF (SPY) has a PE of 18.7x and a dividend yield of 1.7%. The SPDR Dow Jones Industrial Average ETF (DIA) has a PE of 17.8x and a dividend yield of 1.9%.

Dividend ETFs with exposure to Helmerich and Payne:

The iShares Select Dividend ETF (DVY) has a PE (price-to-earnings ratio) of 20.3x and a dividend yield of 2.9%. The WisdomTree US MidCap Dividend ETF (DON) has a PE of 23.6x and a dividend yield of 5.2%.

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