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High EBITDA Growth, Consistent Dividend, and Cheaply Valued Companies (Part II)

Thursday - 5/2/2013, 3:08pm  ET

In a previous article, I talked about two businesses, VSE and HollyFrontier, which had high EBITDA growth, paid uninterrupted dividends, and were valued cheaply. In this article, I will uncover more such stocks which possess the same criteria including: (1) annualized EBITDA growth in the past 10 years was at least 20%, (2) minimum 10 years of consistent dividend payments, (3) EV/EBITDA is in between 1 and 5, and (4) market cap is larger than $100 million.

They are Helmerich & Payne  and IAMGOLD .

Helmerich & Payne – cheaply valued with consistent dividend payment

Helmerich & Payne, incorporated in 1940, is an oil/gas contract driller, operating in three main business segments including U.S. Land, Offshore, and International Land. Most of its revenue, $2.68 billion, or 85% of the total revenue, was generated from the U.S. Land segment while the Offshore segment and the International Land segment generated only $189 million and $270 million, respectively, in 2012. The U.S. Land segment was also the biggest operating profit contributor, with $907 million in operating income.

As Helmerich & Payne is a driller, with around 320 rig fleets at the end of fiscal 2012, I would expect the company to spend a lot of cash flow on capital expenditure to maintain the rigs. Indeed, in 2012, the company generated $1 billion in operating cash flow, but the capital expenditure was nearly $1.1 billion, leaving the free cash flow negative at nearly $100 million.

Since 2003, Helmerich & Payne has paid consistently increasing dividends, climbing from $0.16 per share in 2003 to $0.28 per share in 2012. In the past ten years, the company has grown its EBITDA at an annualized rate of 26.3%. The company is trading at around $58 per share, with a total market cap of $6.17 billion. The market values the company at only 4.56 times EV/EBITDA. The dividend yield is 1%.

Icahn’s activism in Transocean

Helmerich & Payne seems to be much cheaper compared to its bigger peer Transocean . At $51 per share, Transocean is worth around $18.3 billion. Transocean’s EV multiple is two times that of Helmerich & Payne. However, Transocean is better than Helmerich & Payne in the fact that the company has been generating consistent positive free cash flow for a decade. In 2012, while Transocean’s operating cash flow was more than $2.7 billion, its free cash flow was more than $1.4 billion.

Interestingly, Transocean received special attention from famous activist investor Carl Icahn. He has accumulated a 5.4% stake in the company. Icahn tried to nominate his people on the board and push Transocean to pay the dividend of $4 per share. If it were the case, Transocean would offer investors a juicy dividend yield of more than 7.8%.

However, the company responded that Icahn’s proposal did not align with Transocean goal to make its balance sheet stronger by paying the debt down. The company wants to maintain a liquid and strong balance sheet to stay ahead in the cyclical offshore drilling industry.

The indirect exposure to gold price volatility

IAMGOLD is an explorer and producer of mineral resources globally, with interests in five different gold exploring and operating properties. At the end of 2012, IAMGOLD had more than 11.3 million ounces of gold as proven and probable reserves and more than 22.6 million ounces of gold in measured and indicated resources.

In the past ten years, IAMGOLD has managed to consistently grow its net revenue and net income. Revenue increased from $101 million in 2003 to $1.67 billion in 2012 while net income, although fluctuating, witnessed an upward trend, from $15 million to $335 million during the same period. IAMGOLD has a 10-year annualized EBITDA growth of 34.1%. The company is also a consistent dividend payer. Its dividend rose from $0.05 per share in 2003 to $0.25 per share in 2012.

At around $5 per share, IAMGOLD is worth around $1.9 billion on the market. The market values IAMGOLD quite cheaply at only 2.46 times EV/EBITDA. At its current trading price, IAMGOLD offers investors a juicy dividend yield of 4.9%. However, as the company is a mining and exploration company, its income and cash flow are significantly impacted by the price of gold. Thus, investors would be indirectly exposed to the risk of widely fluctuating global gold price by investing in IAMGOLD.

My Foolish take

Investors need to dig deeper into each position to find out the suitable stocks for their own portfolios. I like Helmerich & Payne with its low valuation and consistently increasing dividends. I also like Transocean with Icahn’s activism. However, I would stay away from IAMGOLD due to increasing volatility in gold price at the moment. 

This article was originally published as High EBITDA Growth, Consistent Dividend, and Cheaply Valued Companies (Part II)on

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