SeaDrill for High Yield

[dan_s]

SeaDrill has made some progress recently locking in long-term contracts that insure they can keep paying their high dividend of $3.92/share for annual yield near 11.3%.

Read: http://seekingalpha.com/article/2162593 ... re-driller

To lock in an even higher yield buy SDRL at the current price and immediately sell deep in the money Covered Calls. Although you give up the share price appreciation by doing this, you cannot loose money unless the share price drops below the strike price of the calls. SeaDrill has very active option trading because a lot of investors are using this technique.

[grimaldi]

I gave up on this when the argument was raging the loudest. I had done ok before the trouble started and only had a tiny loss, not including all the dividends that I'd gotten since SDRL got its NY listing. This is a cult sock and it is hard to have a reasonable discussion when the cheerleaders drown out anybody who dares to hazard a cautionary word. They may very well turn out to be right, but too much emotion for me.

[dan_s]

You're right about it being an "emotional stock", which is amazing for a company of this quality and size. What I've done is buy it and immediately sell deep in the money covered calls to lock in very high dividend yield. Selling the calls does eliminate the upside.

The world is going to need the oil from deepwater drilling. There is some risk that the market is oversupplied with rigs, but SeaDrill should be OK since they have such a modern fleet. Take a look at the BP Energy Outlook report, which is still available on our home page, and you will see how important deepwater oil supplies are to the future. "Cheap Oil" is gone forever.

Take a look a the five year stock chart and you will see that SDRL is quite volatile, but the trend is definitely up. I see very little chance of them cutting their dividend.

[davidc257]

After earnings today what is the view on Seadrill i.e. Buy, Sell, or Hold?

[dan_s]

I still own it, but I have not looked closely at it in months. My strategy was to buy SeaDrill on the dips and immediately sell deep in the money call options to lock in better than 12% annual yield.

Last time I looked, my short-term outlook was bearish (due to over-supply of rigs) but my long-term outlook is very bullish for the deepwater drillers.