Thursday, April 22, 2010

Ensco Announces Major Dividend Increase

On April 21, Ensco plc (NYSE: ESV) announced a major increase in its quarterly dividend, from $0.025 to $0.35 -- the new dividend is 14 times what it used to be!

The company is an offshore driller, with a fleet of ultra-deepwater semisubmersible and premium jackup drilling rigs and well-trained employees. It keeps its fleet recent by selling older rigs and purchasing newer equipment, which helps it command good prices for its services.

Management is good and has kept the company from becoming debt-ladden, a trap that many other drillers fell into. This has positioned Ensco well to survive the drop of oil prices (and the corresponding drop in offshore drilling). It recently announced solid 1st quarter earnings of $1.11 per share (diluted). That means that even with the increased dividend, the payout ratio remains quite manageable at 31%. And it leaves the company with plenty of money to expand its operations. Its strong financial position also means that it is always ready to take advantage of opportunities

When I purchased this company last September, I cited its small debt load and strong cash flow as strong points (to help it survive the recession), its valuable expertise, the fact that the drilling industry was currently depressed and bound to come back eventually.

I also mentioned that the dividend was minuscule -- which is no longer true with a yield of 2.9% -- a fair value between $55 and $63 and an investment timeline of 5 years. I would sell only if the share price was to rise significantly (more than 10%) above the fair value without good reasons.

I hold a small position (50 shares) in my RRSP.

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