Black Gold Pays Off Big
06/20/2013 7:00 am EST
This oil and gas contractor is taking advantage...and profiting from...the opportunities in shale drilling, says John Dobosz of <a "target=_blank" href="http://www.newsletters.forbes.com/DRHM/store?Action=DisplayProductDetailsPage&SiteID=es_764&Locale=en_US&Env=BASE&productID=252322600">Forbes Dividend Investor.
In all of my picks, I present to you stocks trading at discounted valuations to historical averages, with dividends that are well covered by earnings and cash flow.
Ideally, dividends are on the rise, since higher payouts represent not just more money in our pockets, but also greater confidence by management and directors in the company's future business performance. Along those line, here's one company that just opened up the dividend fire hose, and I urge you to take a drink.
Tulsa, Oklahoma-based Helmerich & Payne (HP) is a great addition to our dividend portfolio. Recently, the contract oil and gas driller raised its payout by 233% to $2.00.
Six months ago, the board more than doubled the dividend from $0.07 to $0.15 per quarter. Helmerich & Payne has paid consecutive quarterly dividends since 1987, and has never reduced the amount paid out.
Even after jacking up the payout to $2 per share, the company will hardly be huffing when it comes to paying the dividend. Earnings for the current year ending in September are expected to come in at $5.48 per share, up 6.4% from $5.15 last year. Wall Street EPS forecasts have been rising steadily over the past three months. Revenue should grow 7.4% to $3.39 billion.
The big driver of business has been the boom in shale drilling, which has boosted demand for H&P's rigs and crews that specialize in hydraulic fracturing. Revenue and earnings have been growing at better than a 25% annual pace for the past three years, and the cash is piling up.
Last year, H&P generated $1 billion in operating cash flow from $3.1 billion in total revenue, giving it plenty of room to pay out $213 million in annual dividends at the new rate.
Besides gushing cash, H&P is also looking pretty cheap based on historical valuations. As a multiple of revenue, H&P traded at an average of 2.6 times its last 12 months of sales over the past five years. Based on trailing 12-month sales, that historical multiple would garner H&P a share price of $81.
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