Seadrill's Dividend Is Sustainable

Seadrill currently pays a dividend of $0.85 quarterly or $3.40 per year. The company stated in its presentation at the Credit Suisse Energy Summit that this amount represents a floor on the dividend and that the dividend will not be reduced to any amount lower than that for the foreseeable future. With this information, we can calculate the amount of money that Seadrill has committed to pay to its stockholders. Seadrill's operating cash flow in the fourth quarter was only $241 million, which was not enough to cover the dividend. I

It does appear that Seadrill will not have sufficient operating cash flow to cover its dividend for at least a few quarters until the large number of newbuilds are completed and begin operating. The company will need to rely on some other source of cash to cover the difference during this period. This is just a short-term problem, though. Seadrill's newbuild program is more than large enough to both make up for the loss of the cash flow from the tender rigs and grow the company's cash flow going forward.

Source: Seeking Alpha

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