Buy Helmerich & Payne for Its Dividend, Then Get Out Fast
Shares of oil driller Helmerich & Payne (HP) - Get Report will begin trading ex-dividend on Tuesday -- the day management will finalize the roster of shareholders to whom it will send payments this quarter. To qualify for a dividend check, investors must own shares of the Oklahoma-based company on or before its ex-dividend date. Investors of record as of Nov. 13 will receive their dividend payments on Dec. 1. But don't hold these shares beyond that.
Owing to an oil glut that has pushed crude prices down to a cyclically low range and kept them there, Helmerich shares have been under pressure -- they're down around 13% in 2015 and 24% over the past six months. If you've held the stock for the past twelve months, you've seen your investment lose more than 30%. Helmerich does, however, pay a solid 68.75-cent quarterly dividend that yields 4.6% annually, based on its current stock price of around $59.50.
It's true, the company's dividend yield is almost three percentage points higher than the average 2% yield offered by dividend payers in the S&P 500 (SPX) index. And this quarter will mark the sixth consecutive period during which Helmerich has made its 68.75-cent cash payout, following a three-quarter period during which the dividend was raised by a total of 37.5%.
That said, given the degree to which Helmerich's business has suffered, (second-quarter earnings and revenue were down 52% and 30%, respectively) it's worth asking whether suspending its dividend until business conditions improve might be the right move. Don't agree? Consider, not only does its fiscal 2015 consensus earnings projection of $2.99 a share imply a more than 50% decline, Helmerich is projected to lose 7 cents a share in 2016.
Granted, Helmerich, which specializes in oil and gas well-drilling, is not alone is its struggles. The entire energy sector is adapting to a new normal of low oil prices -- a fact reflected in the 13% year-to-date decline of the Energy Select Sector SPDR Fund (XLE) - Get Report . But it would seem Helmerich would be better served foregoing its dividend to preserve capital, especially with its consensus five-year earnings growth projections under 1%. Investors could more easily roll the dice and get almost 6% earnings growth from S&P 500 index.
Not to mention, there's almost no implied premium on these shares, based on their average analyst 12-month price target of $60 -- that's just a hair higher than their Friday afternoon level of around $59.50. So where's the value? In this case, with more implied risk than profit, this is a classic dividend capture play: Buy Helmerich only to collect its dividend, then as soon as it's paid, run for cover.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.