The average yield over the last 5 years has been below the threshold I usually invest in (similar to Rio Tinto) - 2.6% . The oil and energy sectors have experienced significant losses in share price over the last few months and Petrofac is very much part of that club. Their 52 week high was 1,483p per share, which is 54% higher than it was at the time of purchase. Their recent slump saw prices as low as 594p a couple of weeks ago. The last time the share price was down at these levels was back in May 2009.
The share price tripled in less than three years (May 09 to Apr 12). It peaked in April 2012 at 1,772p per share. The price then continued to decrease down to it's current level. The drop in share price from top to bottom is almost 66.5%. Ouch! You can find great opportunities in such drops and that's exactly as I view it now. Petrofac's yield has increased significantly to 5.97% on today's prices. There is of course the possibility that the dividend might be cut or reduced, but at it's currently level it could still be maintained, especially if there is further growth between now and when the companies Final Results are released on 25th February 2015 and the Final Ex-Dividend date in April 2015.
The companies P/E Ratio is currently at 5.35. It's worth noting that the P/E ratio was 13.10 at the end of 2012, and 9.60 at the end of 2013. I usually look for companies with a P/E ratio below 20.
The dividend payment has increased every year it's been on the stock market, which dates back to 2004. Over the last 5 years the average dividend growth rate was 21.6%. The most recent increase was 2.81%.
Their average dividend cover has been a very consistent 2.91 over the last 5 years, and for the previous financial year, the dividends were covered by 2.9.
I've been watching Petrofac for just over 6 months now as their share price was dropping. I was close to making a move when their price went below the 1,000p mark. Thankfully, I didn't have any spare capital at this point. Their price shot up to 1,200p and then it slumped to 594p a few months later with the oil price drop. I was unsure about Petrofac at that point. I've been stung by Tesco and I didn't want to jump on a dead duck.
Earlier this week, the company announced that they had won a $4bn contract for Kuwait's state oil company. The news was followed by a 11% hike in share price in a few days. This was exactly what I was waiting for. Some confidence.
Petrofac may struggle to continue paying out an increasing dividend for 2015, but it now has a foundation to build on again. If the share price rises to a level it did back in 2012, I could see capital growth of nearly three times of my initial investment. I'm hoping that I'll benefit from stable increasing dividends from 2015 moving forward, like they demonstrated between 2004 and 2014. A big part of my decision was based on benefiting from capital growth.
What do you think of Petrofac? Or is this industry still too risky to invest in? Are you happy with your NISA Provider?
