Helmerich & Payne, Inc. (HP) provides contract drilling services in the oil and gas industry.  The company operates primarily in the United States but also has some international operations in countries such as Colombia, Argentina, Ecuador, Tunisia, Bahrain and the United Arab Emirates.

Founded in 1920, Helmerich & Payne is one of the primary land and offshore platform drilling contractors in the world.  The company has been a top industry performer for over 90 years and continues to maintain this reputation through innovation and quality service.

The company has roughly 300 U.S. land rigs, 9 offshore rigs and 29 international rigs reports as of Fiscal Year ended 2013.

Financial Highlights

First half results of their 2014 Fiscal Year (ending September 30th), Helmerich & Payne has reported per share net profits of $3.17.  This is a 10.5% increase compared to the first half of the previous fiscal year.  Helmerich & Payne is on pace for a record setting year in 2014.  This good news has not gone unnoticed by investors as they have pushed the share price of HP up nearly 37% since the beginning of 2014.

Looking at some growth figures, Helmerich & Payne has a 10 year EPS growth rate of 41.37%.  Most recently, 1 year EPS growth rate was 8.92%.  Revenue growth has also been strong for this oil drilling company with 10 year and 1 year rates coming in at 20.72% and 7.48% respectively.

Reviewing the balance sheet of HP shows long term debts of $80.0 million.  Compared to 2013 net profits of $623.3 million, Helmerich & Payne has a long term debt/net income ratio of just 0.14.  To put it another way, H&P could wipe out all long term debt with around 1.5 months worth of profits.  Looking over the balance sheet, Helmerich & Payne earns a high A rating for financial strength.

Dividends and Growth

Helmerich & Payne has a very long dividend growth streak of 42 consecutive years.  However, the company has just recently begun ramping up their dividend payout to shareholders.

In 2012, H&P paid out just 5% of net profits to shareholders and had an average dividend yield of just 0,5%.  In 2013, H&P increased their payout to 15% of net profits and had an average dividend yield of 1.4%.

Due to high recent dividend growth, Helmerich currently offers a nice 2.39% dividend yield with a payout ratio of just around 12%.

Helmerich & Payne has a 10 year compound annual dividend growth rate of 18.45%.  However, this figure is misleading because the company has really just begun the past couple of years to ramp up their dividend payments to shareholders.  In fact, H&P’s 1 year dividend growth rate was 210.71%.

The company’s most recent dividend increase was announced in June 2014.  They announced a dividend increase of 16% which was the second increase announced in the past year.

Valuation and Investment Thesis

Currently, Helmerich & Payne is trading with a trailing 12 months P/E ratio of just above 16.  This can be compared to the stock’s 10 year historical average P/E ratio of 14.62.

While not a bargain, Helmerich & Payne appears to be pretty fair valued at the present time.  The company is on their way to a stellar year of operating results and has shifted to a focus of returning shareholder value in the form of a higher dividend payout.

For dividend growth investors looking for a dividend that will likely grow at a high rate over the next few years, HP could be a good company to review.  Long term investors could expect fairly solid returns assuming production growth continues for this oil rig drilling company.

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Disclosure: I do not currently own any shares of HP.

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2 Responses to Helmerich & Payne: Oil Rigs and Dividends

  1. I really missed the boat on H&P. I should have paid more attention to them about 2 years ago. Almost every rig that I went to or saw as I drove by was H&P. My biggest concern with them is how quickly the oil field can shut down. The BP oil spill in 2010 stopped a lot of drilling both off and on shore almost overnight. When nat gas prices collapsed in ~2011/12 that almost immediately shut down drilling in the Haynesville (Louisiana) rather quickly. For the first 1.5-2 years of doing my job I worked in nothing but Louisiana, since then not one day because almost no one is drilling over there. But with such a low payout ratio they should be able to weather any issues and keep the dividend intact.

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