Why You Should Invest In Seadrill Ltd (SDRL)

Nonetheless, it looks like we are at the start of the growth phase in deepwater drilling, and it’s unlikely we’ll see the kind of problems that plagued shippers, at least in the short-to-medium term.

Where Does Seadrill Stand?

Seadrill Ltd (NYSE:SDRL) is one of the biggest players in the sector and has an extremely strong position, with strong ties to other big energy names. Deepwater drilling is the most lucrative segment in the offshore drilling at the moment, so Seadrill is making a very wise strategic move by selling most of its shallow-water rigs and replacing these with ultra-deepwater rigs. That allows the company to secure contracts at higher day rates.

One of the most important factors for Seadrill Ltd (NYSE:SDRL) is its order backlog; the company has acquired contracts for almost all of the rigs it’s building. Order backlog for the company currently stands at more than $21 billion, which provides it earnings visibility over the next five years. Recently, Seadrill Ltd (NYSE:SDRL) secured a three-year, $662 million contract for its new drillship, which will add to its already impressive backlog. The deal was closed at the day rate of $600,000; the range in the sector is $550,000-$650,000 for such contracts.

Conclusion

Seadrill is extremely attractive to investors, thanks to its mouth-watering dividend yield. The stock yields over 9%, which is extremely handy in the current low interest rate environment. The biggest concern about a company’s dividend arises when the company is not able to generate enough cash flows to cover its payouts. However, in Seadrill Ltd (NYSE:SDRL)’s case, its lucrative contracts and hefty order backlog should ensure that the company continues to pay its sumptuous dividend.

There are a few companies that can sell their products even before manufacturing them. Having secured contracts for rigs it hasn’t even finished building yet, Seadrill Ltd (NYSE:SDRL) definitely qualifies.

The article Why You Should Invest In Seadrill originally appeared on Fool.com is written by Ishtiaq Ahmed.

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