Nabors Industries Ltd. (NYSE:NBR)
Year 2013 can be a rough one for Nabors Industries Ltd. (NYSE:NBR). For starters, the first-quarter wasn’t an ideal start for the company. It expects a decline in land rig margin by $1,000/day. Much of the rig margin pressure will be driven by rigs shifting from term contracts to lower spot rates. The company highlighted that 36 rigs shifted during the last-quarter of 2012. The shift of existing rigs to the spot market, coupled with another 174 rigs that are already working on the spot market could lead to lower margins in the first-quarter of 2013 and also the rest of the year.
On the bright side the company is trying to trim down its balance sheet by repaying its debt from the proceeds of sale of its non-core assets. Last year the company repaid debts for about $700 million and wishes to reduce $400 million more this year. This should help stabilize its margins by reducing the interest expense.
Additionally, the company has revised the compensation structure of its CEO. It has removed a number of additional benefits and potential bonuses like eliminating death and disability benefits valued at about $50 million and capping termination payments. The new plan also removes CEO’s uncapped bonus, which resulted in a $17.5 million bonus in 2012. The new plan achieves a good balance of executive incentive and shareholder interests by providing substantial cost savings. Recently the company announced $0.04/share dividend. This initiation makes 2013 the first year in which Nabors has declared quarterly dividend. Its emergence as a dividend payer potentially opens up the stock to income oriented investors.
What’s the take?
Commitment of all the three stocks towards rewarding their investors through quarterly dividends is obvious. But for Nabors the game is new. It could see a rough patch in 2013 because of the exposure of its contracts towards lower spot rates. It is trying to mitigate the low margins by timing down its debts and CEO compensation. I want to wait and see how this works out for the company. I recommend a hold on this stock for now.
The cash requirement of Transocean LTD (NYSE:RIG) is evident from the scheduled debt and penalty payment in the coming year. But solid future sales pipeline and rock-solid long fundamentals strengthen my confidence in this stock. I recommend a buy on this stock.
As for Ensco, the high revenue efficiency of its new-builds and future contracts of its upcoming ones compliment the increase in the annual dividend. I’ll recommend a buy because of its transparent future cash flows and increased dividend yield.
The article Dividend Stocks You Should Buy This Month originally appeared on Fool.com and is written by Madhu Dube.
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