Why Seadrill Partners LLC Plunged 24% in November

Falling oil hasn't helped offshore drillers lately.

Travis Hoium
Travis Hoium
Dec 9, 2015 at 10:00AM
Energy, Materials, and Utilities

What: Shares of Seadrill Partners LLC (NYSE:SDLP) dropped 24% in November, a drop that has continued in December because of low oil prices.

So what: Operating results released during November weren't all bad. Revenue rose from $417.2 million a year ago to $456.5 million, driven by the addition of West Polaris to the fleet. But losses from derivatives and higher interest expenses resulted in a loss of $125.4 million, something that didn't please investors. 

SDLP Chart

SDLP data by YCharts.

With oil prices reaching a six-year low, there's also concern that Seadrill Partners' dividend won't last much longer. Backlog of $4.7 billion and a contract duration of 2.8 years will give the company runway for a little while, but if oil stays below $40 through 2016, it's hard to see how the dividend of $0.5675 declared for the quarter could be maintained.

Now what: Sometimes a high dividend yield is really a warning that a stock has a rocky road ahead. Seadrill Partners may look attractive with an implied dividend yield of 38%, but that kind of payout rate means investors don't expect the dividend to continue for long. I think a dividend cut could be in order as early as next quarter. With that kind of uncertainty ahead, and oil seeing no bottom in sight, this is a stock to approach with caution.