Recent Buy: Helmerich & Payne

Feb 2, 2015: Bought 41 shares of HP at $62.31 per share.

Headquartered in Tulsa, Oklahoma, HP is an energy-oriented company engaged in contract drilling of oil and gas wells. The company was incorporated under the laws of the State of Delaware on February 3, 1940. The company's existing fleet includes 338 U.S. land rigs, 36 international land rigs and 9 offshore platform rigs.

HP is a Dividend Champion with a track record of 42 consecutive years of dividend increases. It pays quarterly dividends of 69¢ per share in the months of March, June, September and December.

HP is an existing holding. I first bought shares of HP on 11 November 2014, picking up 29 shares at $85.57 per share and at an initial yield on cost (YoC) of 3.21%. This time, my initial YoC is 4.16%.

 Source: Scottrade

With this buy, I'm averaging down to a per share price of $71.95. In the chart above, my two entry points are indicated. It looks like HP's share price is forming a base – after 7 consecutive down months, so far, February looks to be bucking the trend.

The past year or so, HP's dividend yield has climbed significantly. This is due to some aggressive dividend increases and, of course, the recent price weakness.



HP's 5-year dividend growth rate is 67.3%, while its past 5-year dividend-to-earnings growth (DEG) ratio is 5.3. The DEG ratio shows the relationship between the dividend growth rate (per share) and the earnings per share (EPS) growth rate over the past 5 years. Despite the recent aggressive dividend growth, HP's EPS percentage payout is relative low at only 42.64%.

The following chart shows HP's dividend payments and earnings per share over the last 10 years. HP's EPS is growing generally, though it seems somewhat cyclical.


Over the past 10 years, HP has outperformed the S&P 500 comfortably.

 Source: Scottrade

An investment in HP 10 years ago would have nearly tripled your money, while YoC would now be an impressive 41.25%!

 Source: GuruFocus

Analysis of HP

My fair value estimate of HP is $68.74, so I bought shares at a discount of just more than 10%. The following table provides some key statistics, with highlighted values relating directly to my selection criteria.

HP passes the following of my selection criteria:

• A streak of at least 5 years of dividend increases (42 years)
• Dividend yield exceeds 2.75% (4.41%)
• Chowder rule: Dividend yield plus 5-year CAGR exceeds 8% (71.3%)
• Debt to equity ratio is below 50% (2%)
• Price to earnings ratio (P/E) is less than 20 (TTM 9.43x and Forward 10.83x)
• 5-year CAGR is at least 10% (67.35%)
• Reasonable confidence in continued dividend growth (Yes)
• Price discount is at least 5% of fair value estimate (10.33%)

HP fails the following of my selection criteria:

• Earnings per share (EPS) percentage payout is less than 40% (42.64%)
• P/E to annual EPS growth (PEG) ratio is less than 2 (10.45)

Based on these statistics, HP earns 4 out of a possible 7 stars: (****---)

Other ratings for HP

Zacks Rank  5-Strong Sell  S&P Capital IQ's Stock Report  (***--) Hold  Thomson Reuters StockReport+   (4/10) Neutral   MorningStar Rating  (****-)  TheStreet Ratings Rating  Hold [C+]  The Motley Fool's CAPS Rating  (****-)

Concluding Remarks

HP topped my January dashboard of dividend growth stocks with 6 stars, but it dropped into sixth place with 4 stars in my February's dashboard. With the plunge in crude oil prices, HP's outlook is challenging but much of the bad news is already priced in.

HP's first quarter results were strong, with revenues rising nearly 19% year-on-year. However, the company is expecting very weak results in the current quarter and may cut 2000 jobs as it idles rigs. I expect that HP would need to reign in its very high dividend growth rate as earnings drop.

On the other hand, HP has a solid financial base, so I believe the company will weather the storm just fine. At some point in the future, declining oil production will trigger a reversal in crude oil prices, which will allow HP to recover. Expect increased volatility, though, until that happens...

Meanwhile, I'm happy to add shares at a YoC of 4.41%. HP has a stellar dividend record and I believe the company will continue to deliver, albeit at a reduced dividend growth rate.

41 shares of HP adds $112.75 to DivGro's projected annual dividend income.

Thanks for reading! Do you own shares of HP?