by Robert Hauver
This article will focus on the “Rodney Dangerfield” of drilling dividend stocks, UK-based Ensco plc, (ticker ESV), which has had big dividend and earnings growth, and looks poised to continue that trend. Unfortunately for its shareholders, the market has given ESV little respect over the past year, sending it down to an oversold price/share currently:
Undervalued Earnings: ESV has concentrated on modernizing its fleet, and has one of the youngest fleets in the drilling industry, with 9 new rigs delivered over the past 3 years, and 8 more to be delivered through 2015. This has helped it achieve higher margins than its competitors, and has also contributed to strong growth over the trailing 4 quarters:
Analysts are estimating continued EPS growth in 2014, which, combined with ESV’s low P/E, show it to be undervalued on a PEG basis:
Looking further into the future, ESV also has a low 5-year forward PEG ratio of .60:
More Valuations: ESV also looks undervalued vs. its industry on a Price/Sales and a Price/Book basis:
Strong Dividend Growth: ESV has raised its quarterly dividend all the way from $.025 in 2008, to $.50 in 2013.
Options: Although ESV isn’t in the universe of high dividend stocks, it does have high options yields. You can substantially increase your yield on ESV’s dividends, via selling Covered Calls.
This March 2014 trade, from our Covered Calls Table, has a $55.00 strike price. The call premium pays 3 times what ESV’s next 2 dividends pay. You’ll also get paid this covered call premium now, vs. having to wait for ESV’s next 2 dividends to be paid out:
We’ve listed the 3 major scenarios below for this call options trade:
Puts: If you want to achieve a lower breakeven cost now, selling Cash Secured Puts is the way to go. This put options trade also expires in March 2014, and pays en even higher options premium, of $3.90, while giving you a breakeven of $51.10, which is just above ESV’s 52-week low. You can see more details for this and over 30 other Put options trades, in our Cash Secured Puts Table:
Financials: As we mentioned above, ESV enjoys much higher margins than its industry averages. It carries a bit more debt, but it does have an Interest Coverage ratio of 11.52.
Author: Robert Hauver, copyright 2013 DeMar Marketing, All Rights Reserved.
Disclosure: Author had no ESV stock or options positions yet at the time of this writing, but may initiate positions over the next 72 hours.
Disclaimer: This article was written for informational purposes only. Author not responsible for any errors, omissions, or actions taken by third parties as a result of reading this article.