Petrofac: An FTSE 100 Dividend-Raising Star

LONDON -- In an outcome that's tough on investors, the FTSE 100 has failed to deliver a rising dividend payout over the last few years.

Just look at the iShares FTSE 100 ETF, for example. This is an exchange-traded fund that tracks the benchmark index, and we can see that the aggregate payment from Britain's top 100 companies has yet to regain its prerecession peak:

That's disappointing. But some companies within London's premier index have performed well on dividends, despite these austere times, and this series aims to seek them out. One such name is Petrofac (LSE: PFC.L).

The big question is whether Petrofac's dividend can continue to out-perform its index. Let's put the firm under scrutiny and test its financial mettle.

Petrofac is an oil field services company with worldwide operations. With the shares at 1,529 pence, the market cap is about 5.6 billion pounds. This table summarizes the company's recent financial record:

The dividend has increased by 280% during the last five years -- equivalent to a 39.6% compound annual growth rate.

Since its establishment around 31 years ago, when it employed less than 30 people, Petrofac has grown rapidly in the oil and gas sector and now employs about 16,500 workers in 29 countries, operating out of seven strategically located centers in Aberdeen, Sharjah, Woking, Chennai, Mumbai, Abu Dhabi, and Kuala Lumpur, with a further 24 offices worldwide.

The main business focus is the U.K. Continental Shelf, the Middle East and Africa, the Commonwealth of Independent States, and the Asia-Pacific region. Right now, the company earns around 70% of revenue from onshore engineering and consultation, 20% from offshore projects and operations, and the rest from other services and consultancy.

The directors seem to have ambitious targets for growth, and if past performance is any guide, growth is likely to result in increasing free cash flow -- ideal for sustaining a progressive dividend policy.

Petrofac's dividend growth score
I analyze four different features of a company to judge whether its dividend can continue to rise:

1. Dividend cover: Earnings covered the last payout more than twice. Score: 4/5
2. Net cash/debt: The balance sheet shows net cash. Score: 5/5
3. Cash flow: Cash flow supports profit, and both are trending up. Score: 5/5
4. Outlook/recent trading: Both recent trading and the outlook are good. Score: 5/5

Overall, I score Petrofac 19 out of 20, which encourages me to believe the firm's dividend may continue to outpace dividends from the FTSE 100.

Foolish summary
The firm's recent positive outlook statement bodes well for the dividend's prospects. If the cash flow holds up, there's every reason to expect increasing payouts, and Petrofac has a good record of converting revenue to free cash.

Right now, Petrofac's forecast full-year dividend is 44.66 pence per share, which supports a possible income of 2.9% in 2013. Given the company's growth record, that looks attractive to me.

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