Friday, April 11, 2014

April 2014 Stock Buy

A new month brings a new stock for the portfolio.  With the recent sell off in the market I decided that it was the perfect time to go bargain shopping.  One of the stocks that has been sitting on my watchlist dropped down below my target threshold today and I just had to make the move.  I set my alarm and woke up in the middle of my sleep period (I work nights) to make a quick market check and pick up shares of beleaguered offshore drilling MLP Seadrill (SDRL).  I spent a total of $1,428.56 and bought 43 shares at $32.99 a pop.

While this article is by no means meant for analysis I will give an extremely brief breakdown of why I picked this company.  Seadrill has been under fire lately as there is an expected lull in the deepsea drilling industry due to increased production from oil shale.  Seadrill also carries a large debt load and pays out the majority of its profits in its dividend.  But even with all of these issues the company still pulls in enough profit to pay its bills and maintain/grow the newest fleet of offshore rigs of any drilling company in the world.

It is my opinion that this position carries more risk and potential upside than any other position in my portfolio.  In the past 6 months shares of Seadrill have declined 27.66% and I don't know if they will continue to decline meaning I could be trying to catch a falling knife here.  As an engineer I analyze risks every single day and for me personally I am willing to assume the risk at this price point.

I look forward to writing more detailed articles once I have returned back to a more manageable work/life balance.

Seadrill's dividend is currently frozen at $0.98 per share which gives me a yield on cost of 11.88%.  Adding 43 shares I have increased my 12 month forward dividend by $168.56 of ordinary dividend income.  My new yearly dividend income sits at $739.85.  It is not yet half way through the year and I have now reached my original goal of having $700 in forward dividend income by the end of the year.  I am also well on my way to smash through the $900 adjusted goal that I came up with.  At this rate assuming a 3% yield on future investments I will need to invest just over $5,000 in the next 8 months to reach this rate.  My portfolio has been updated to reflect this new purchase.

“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”

                                                                                                                     -Warren Buffett

Disclaimer:  Long SDRL


  1. Wow, quite the yield on Seadrill. I've heard some chatter about them but for me the risk is a bit too great at this point. For a company with such tremendous capex requirements, debt load, and dependency on oil prices being above a certain threshold for it to make sense to build the platforms, either a dividend cut or further price reductions might be in store. I hope it works out for you!

    No matter how you slice it, you are going to blast through your goals for this year. Heck of start to your dividend growth investment strategy! Keep it up!

    1. The management is extremely confident that they will be able to keep up the dividend (and they have the reserves to back it up) however the offshore drilling industry is hurting because of the increasing efficiency of shale oil. Right now 2014 is pretty solid for Seadrill in that they have almost all (something like 98%) of rigs contracted out but 2015 is a little more cloudy. The sell off was significant enough to get me in the door and I have a high tolerance for risk in investing. Of all the deepsea drilling companies I like the outlook of Seadrill by far the most.

      I couldn't be happier with the momentum so far this year. I look forward to seeing where it ends! Thank you for stopping in sir and have a great weekend!

  2. Congratulations on your purchase. I've not heard about the company so I can't comment too much on them. I respect your decision to make a riskier than normal call. You had a target threshold, the company passed it and you acted on it. I try to act in this manner as much as possible, it takes the emotion out of the decision for me. It's reassuring to buy stock at a price you feel is undervalued and that's all that matters.

    Great news on your forward dividend total! Hitting your first annual target within 4 months is very impressive, and you're already closing in on the adjusted goal of $900. I bet that feels good doesn't it! :-)

    Keep up the great work, and I hope your selection pays off for you.


    1. Hi Huw! I think it's a good practice to remove the emotion from investing. I also like to make moves on slightly riskier investments from time to time, and there are likely many more risky moves in the future. I like Seadrill a-lot it is just difficult to try and find the bottom. However for me if they continue to drop I will likely continue to buy as I have a positive outlook on them long term. I'm having a tougher time in this up market as many of the companies I want to own are just too darned expensive right now.

      It feels so good to hit that original goal this early and now I just feel like I want to see how far I can take it this year, it is addicting! I guess if you are going to have an addiction, saving money and investing is a good one to choose. :-)

      Thanks for stopping in and it's always good to hear from you.

  3. Definitely a nice risky play. Can't beat that yield. Congrats on blowing by your yearly goal and we are just in the 4th month.

    I was actually looking at one of SDRL's competitors as a potential buy. I was looking at ESV. I thought I missed out after it popped but now it's trending back down. This sector is getting beat up and the shares are falling so that's good for us investors.

    1. I agree Richie, this sector offers an intriguing opportunity right now it's just hard to tell when we hit rock bottom. I like SDRL as a company and if they continue to fall I will most likely end up with more shares in the future, unless something drastic happens that warrants this huge sell off. The massive yield doesn't hurt either, it gives me something extra to look forward to in June!

      I really like ESV as well and if prices stay low I will likely be a shareholder one day soon.

  4. I've been a shareholder in Seadrill since 2009 when it was only listed in the Oslo Exchange and they were just starting to expand their business. When it was listed in NYSE on 2010 I bought more and actually transferred all my SDRL holdings to NYSE listed shares. They have rewarded shareholders very well with consistent dividend invcreases and currently my YOC stands around 17,3%.

    I've been following SDRL closely and they've done amazing job so far with their operations. I'm very confident with the management as they have grown the company into one of the largest offshore drillers. They also have the most modern fleet with global operations. They do have a large debt load but on the other hand they have large and modern fleet with around $20 billion contract backlog! I think you did a great purchase here. I'm also looking into adding to my position though SDRL currently has 20% weight on my porfolio.


    1. Mikko,

      That is a massive YOC I am jealous! I agree with everything you have said here and these were some of the elements which helped me make my decision to purchase. I really like this purchase and will likely pick up more if SDRL were to continue to drop. Of all of the positions in my portfolio I am probably most excited about SDRL. Thank you for stopping in!

  5. I have been also watching SDRL for quite some time. I wish I would have pulled the trigger when the prices were cheap. I am hoping the price might come down a little in order to snag a few shares in the future. Thanks for sharing and keep up the good work!
    -Dividend Mongrel