Oil and natural gas drilling services provider Helmerich & Payne, Inc. (HP 0.78%) currently offers investors a robust dividend yield of around 6.4%. It backs that up with a 44-year streak of annual dividend increases. That's even more impressive since it operates in an industry that's highly cyclical. But here are a couple of things you should know beyond these dividend stats if you want to buy this industry-leading name.
1. Unrealistic dividend growth
In addition to the long streak of annual dividend increases, Helmerich & Payne also has incredible dividend growth numbers. For example, over the trailing 10 years, its annualized dividend increase was 32%. Over the five-year span it was even higher, at an annualized rate of 60%. The three-year number was 28%. But these huge dividend growth numbers are really an aberration.
Image source: Getty Images
The trailing one-year number tells a more realistic story: Dividend growth was a mere 0.9% over the past 12 months. Part of that low number relates back to the drilling downturn, which has taken a toll on the company's top and bottom lines. But the bigger piece here relates back to a massive dividend increase in 2013, when Helmerich & Payne upped the quarterly payout from $0.15 a share to $0.50 a share. That leap has skewed the three-, five-, and 10-year averages higher. In better times I would expect the dividend to grow faster than 0.9%, but don't go in thinking 30% is a realistic expectation.
2. An outsider CEO
Shortly after the company announced that big dividend increase, it also announced the retirement of CEO Hans Helmerich, the grandson of one of the company's founders. He'd been at the helm for about 25 years. His replacement was John Lindsay, who's still the CEO today.
There are a couple of interesting facts here. First, Lindsay is only the fourth CEO in the company's nearly 100-year history. And then there's the last name. He's the first non-family member to lead Helmerich & Payne. That's not a commentary on his ability, but it's worth keeping in mind. Good or bad, he might be willing to do things a little differently from his predecessors.
3. The U.S. land market share leader
Those two facts are interesting and definitely worth keeping in mind. But there's a lot more to know here. For example, Helmerich & Payne owned nearly 20% of the roughly 960 drilling rigs operating in the U.S. onshore market as of June 2017.
Helmerich & Payne is the leader in the U.S. onshore market. Image source: Helmerich & Payne, Inc.
That gives it the lead position in the industry, beating peers such as Patterson-UTI Energy, Inc. (PTEN 1.07%), Nabors Industries Ltd., and Precision Drilling Corp. If you want to get exposure to the U.S. onshore market, Helmerich & Payne is the largest player in the drilling-services space.
4. More modern rigs than its peers
Helmerich & Payne doesn't just have more rigs working than its peers. It also has more modern rigs, which isn't exactly a coincidence. The company has long focused on leading the industry on the technology front.
Helmerich & Payne's lead, meanwhile, is pretty huge. It has more than twice as many AC drive rigs than its next closest competitor, Patterson-UTI Energy, Inc. AC rigs are more flexible and efficient than older drill equipment. The industry has been increasingly moving toward these higher-end rigs.
5. More modern rigs in the field
And that brings us to the next number. As of June Helmerich & Payne owned 29% of the AC drive rigs that are currently active in the industry. Its next closest competitor was Patterson-UTI Energy, again, with a share of 20%. So not only does Helmerich & Payne have the largest market share in the U.S. onshore business, but it also has the largest share of the most desirable segment.
As an aside, the drilling-services provider also has more idle AC rigs than any of its peers do. So it's reasonable to expect that Helmerich & Payne has the potential to gain even more share of the industry as the switch to AC rigs continues. It's also in a good position to gain share overall if drilling activity picks up, allowing it to get more of its idle AC rigs to work.
6. Charging customers more
Having more high-end rigs means Helmerich & Payne can charge customers more for its services. And it does. Helmerich & Payne's daily rig rate is several thousand dollars higher than the average of its closest peers. Over time, that differential will probably shrink as competitors upgrade their drill fleets, but for now it gives Helmerich & Payne a head start on the bottom line.
Helmerich & Payne's leading rigs, operational excellence, and customer service allow it to charge more than its peers do. Image source: Helmerich & Payne, Inc.
7. Beyond U.S. land rigs
The last thing you might not know is that Helmerich & Payne does more than just U.S. onshore drilling. It has an offshore business and an international onshore business. That said, roughly 80% of revenue in the fiscal third quarter was from its U.S. onshore operations, and nearly 90% of its rigs are dedicated to the U.S. onshore market.
The point is that Helmerich & Payne is predominantly a U.S. onshore driller, and it makes sense to think of it in that way. But don't forget that it has a broader reach.
Putting the puzzle together
For dividend investors attracted to Helmerich & Payne's high yield and an incredible string of dividend increases, the company's industry-leading market-share statistics should be both impressive and comforting. However, it's equally important to note that the 2013 dividend increase has biased the company's historical trailing average dividend increase numbers higher. To put it simply, you shouldn't buy this driller expecting 30% dividend increases. Single-digit increases are far more likely, especially since the cyclical oil and natural gas industry is still recovering from a deep downturn.
The international operations and a CEO who's not "family" are wild-card facts that are worth keeping in the back of your mind. Taken together, they suggest that Helmerich & Payne could shift in directions that, just a few years ago, would have been unlikely.
