NEW YORK (TheStreet) -- Seadrill (SDRL) - Get Seadrill Ltd. Report , the offshore driller, is getting hammered Wednesday after suspending its dividend and thereby wiping out the double-digit yields that have been a big reason, maybe the biggest reason, for owning the shares.

The stock fell by 22% to $16.24, its lowest level in six years. The company's shares have fallen by more than 60% for the year to date.

While the decision looks bad right now, and investors are justifiably angry, the decision to retain its cash is a good one for the Hamilton, Bermuda-based company because it will allow executives more capital for reducing debt.

Seadrill Chairman John Fredriksen called the dividend suspension a "difficult decision" due to the "significant deterioration" in the offshore drilling market, a result of overcapacity and the roughly 20% drop in crude oil prices over the last three months. But Fredriksen said the company will resume its "distributions in the future."

The suspension was largely unexpected given that CEO Per Wullf said during the company's second-quarter conference call in late August that he was "confident" in Seadrill's ability to pay dividends "well into 2016." Nonetheless, it's not like investors hadn't been warned this could happen. Zephirin Group's principal Longdley Zephirin has been warning investors about Seadrill's unsustainable dividends for many months.

To give respite to investors, the company has said it will buy back 10% of its shares over the next 12 months. A buy back reduces the total number of shares, thereby causing an increase in the earnings per share without any growth in total earnings.

The suspension of dividends, however, is not bad news because it can strengthen Seadrill's capital position by around $1.8 billion, allowing the company to refocus its efforts on reducing its debt of $13.8 billion, wrote Zephirin in a Nov. 26 report.

Seadrill has been operating under an enormous pile of debt that is around $5.3 billion greater than its current market cap and the largest as compared to peers Transocean (RIG) - Get Transocean Ltd. Report , Noble Corp. (NE) - Get Noble Corporation plc Report , Diamond Offshore (DO) - Get Diamond Offshore Drilling, Inc. Report , Ensco Plc (ESV) and Atwood Oceanics (ATW) .

Following the suspension of dividends, Seadrill will turn to managing its $4.1 billion newbuild rig program. The company is currently awaiting the delivery of 16 newbuild offshore rigs but Zephirin said Seadrill would "considering postponing rigs from being delivered in this soft market." If Seadrill does this, then it would be following in the footsteps of Atwood Oceanics, which delayed the delivery of two new offshore drilling rigs by around six months each.

TheStreet Recommends

Additionally, Seadrill will avoid ordering new rigs until the market conditions improve, Zephirin wrote. The company already benefits from having the highest percentage of high-quality and relatively young drilling rigs in its rig fleet as compared to its main competitors. These modern rigs generate better day rates as compared to older units.

After Seadrill, some of the other drillers, particularly Atwood and Diamond Offhsore, could also reduce their dividend expenditures in the near future, Zephirin warned. Atwood recently started paying an annual dividend of $1 a share with the aim of increasing it by 10% each year. Atwood's management took a "pre-mature" decision in a "down market," Zephirin added.

Diamond Offshore, on the other hand, has been paying an annual dividend of 50 cents a share since 2007, but during this period it has regularly distributed at least $3 a share as special dividends. These additional distributions are at the "risk of being suspended," Zephirin wrote.

Seadrill did not immediately respond to messages from TheStreet seeking comment. Zephirin Group has a sell rating on Seadrill, Atwood Oceanics and Diamond Offshore. 

At the time of publication, the author held no positions in any of the stocks mentioned.

Follow @Sarfaraz_A_Khan

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

TheStreet Ratings team rates SEADRILL LTD as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate SEADRILL LTD (SDRL) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its notable return on equity and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, generally higher debt management risk and weak operating cash flow."

You can view the full analysis from the report here: SDRL Ratings Report