Photo credit: Seadrill

It usually pays to be a patient investor. While it's impossible to time the market, sometimes by waiting, it is possible to get a better price on a stock that has appealing long-term potential.

That's the approach I have taken with Seadrill (SDRL). Earlier this year I wrote puts to try to buy shares of this top dividend stock on the cheap. That didn't work and I ended up passing on the company after its shares jumped by 18% from the time I wrote my puts.

However, recent developments within the industry, which have contributed to a falling stock price, now has Seadrill going to the top of my watchlist. Let's take a closer look at what's new and what it would take to get me to finally add this top dividend stock to my portfolio.

Challenging seas ahead
Seadrill and its peers make money by signing lucrative long-term contracts with large global oil companies. High oil prices have enticed oil companies to continue drilling, which led to these contracts being quickly renewed and typically at even better prices.

That said, there does appear to be some short-term challenges ahead. At a recent conference Transocean (RIG -2.69%) offered some sobering statistics for 2014. The company said that there are 39 deepwater rigs across the industry that don't have work contracted beyond 2014. That is an unusually high number at this point and it suggests that big oil companies are unwilling to spend at this point.

Overall, Transocean is among the most deeply affected by this trend as it has 14 rigs that come off of contract next year. That's followed by Ensco's (VAL) eight and Seadrill's five. The concern is that these rigs will not get new deals at the lucrative rates that we've seen in the past.

That said, the long-term potential for deepwater drilling is still fundamentally strong. Transocean sees 1,250 new deepwater wells being drilled by 2025, against just 500 that will be drilled this year. There are currently 110 new rigs being built to meet this demand, however, 120 rigs are expected to be replaced due to age. That means the industry could have a rig shortage in the future if more new rigs aren't built. That makes for a pretty compelling long-term opportunity. 

Seadrill's down but not out
Shares of Seadrill have started to feel the short-term pressure, and its shares are now starting to come down a bit. The company most recently reported earnings that missed forecasts and that put even more pressure on its stock. With its stock now more than 10% off its recent peak, I'm starting to get interested in adding it to my portfolio.

That said, I'm not buying just yet. While Seadrill sees the current slowdown in spending as a momentary pause, that doesn't mean it won't continue to take the stock lower. Right now there is no real catalyst for higher oil prices as surging U.S. production and a relative calm in the Middle East has cooled off global oil prices. This is causing tightening cash flows for global oil companies and causing budgets to be reexamined.

Final thoughts
Seadrill will likely be swept under this wave for a little while longer, which could just prove to open up a very attractive entry point for its stock. A stock price below $40 per share would be a very attractive entry point for long-term investors interested in Seadrill's dividend. In fact, at $38 per share the company would have a current yield of 10% and would have me moving Seadrill from my watchlist to my portfolio in a hurry.

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