CAUTION: This 15% Yield May Go off the Deep End

The Next Presidential Medal of Freedom Winner? People are buzzing about an inventor who's changing America. "Few businesspeople have done as much to change the world," says a major economics magazine. The president of a top Texas University called him, "a great man with foresight and generosity." And now a Pulitzer Prize-winning author is calling for him to win the Presidential Medal of Freedom. But here's what's really crazy... The invention he created is helping regular people turn every $15 to $20 into "thousands" according to reports. Click here to see how. Wednesday, December 24, 2014 The Safety Net: A 15% Yield That May Go off the Deep End Marc Lichtenfeld, Chief Income Strategist, The Oxford Club It's no surprise that with the slump in oil prices, investors who have their money in high-yielding energy plays are getting antsy. It's why so many Wealthy Retirement subscribers have requested that I look at the dividend safety of companies like Linn Energy (Nasdaq: LINE) and Seadrill Limited (NYSE: SDRL). This week, we're sticking with the oil theme. Mike W. asked that I examine the dividend safety of another high-yielding oil industry player - Transocean Ltd. (NYSE: RIG). At current prices, the yield is 15.6%. In the most recently reported quarter, which ended in September - before oil prices took a dive - the company generated $517 million in free cash flow. It paid out $272 million in dividends for a comfortable payout ratio of 53%. The dividend is $0.75 per share on a quarterly basis. Transocean announced the dividend through March 2015. On an annual basis, that comes out to $1.1 billion. Going forward, the picture isn't as rosy. The company is expected to spend $1.2 billion in capital expenditures in 2015. But contracts aren't getting signed. With plummeting oil prices, oil producers aren't in a rush to employ Transocean's deepwater drilling rigs. Its rigs are 50% to 78% contracted, depending on the type of equipment. Management has stated that demand is weak. On the company's conference call, CEO Steven Newman wouldn't say that the dividend is safe or that a cut is imminent, only that the board would take a balanced approach to capital allocation and would make an announcement in the spring. But free cash flow is projected to dry up. For the full year, Wall Street projects Transocean's free cash flow to be $437.6 million, which is less than what it generated in the last quarter. And it gets worse from there. In 2015, the consensus estimate is free cash flow of just $167.4 million, turning negative in 2016. Of course, a rebound in oil prices will likely change those estimates. However, with an already high 15%-plus yield, unless demand improves soon, it's hard to imagine the company wouldn't reduce the dividend. It could cut it in half and still offer shareholders an above-average yield while preserving capital. Transocean reduced its dividend in 2013 from $0.79 per quarter to $0.56. I wouldn't be surprised to see it happen again in 2015. Dividend Safety Rating: D Let me know which stock's dividend safety you want me to look at. Leave the ticker symbol using the comment link below. You can also see if I've written about your stock recently by typing in the company name in the search box at the upper right part of the Wealthy Retirement page.   Recent Articles: Wealthy Retirement Two Things You MUST Do to Protect Your Wealth: No one likes to think about injuries and illnesses that may affect us in the future. But not only can they alter our quality of life, they can ruin our finances and decades' worth of hard work. Here's what you should do to prepare. Will Falling Crude Prices Slash This 25% Yield? This high-yielding energy company's preferred shares are priced as if the dividend is in serious jeopardy. Could lower crude prices push it over the edge? Recent Articles: Investment U Using Key Price Points to Buy on the Pullback: Nobody can be expected to know the future... but it is possible to gain a good estimate of where prices may find support or resistance using Fibonacci retracements. Stock Grader: Taser (TASR) Shares Climb as Civil Unrest Erupts: Nonlethal weapons maker TASER International has attracted the attention of law enforcement agencies and police departments, as well as Wall Street. IT DOESN'T MATTER IF YOU'RE AGAINST THIS TECH... IT'S COMING A major tech trend is on the rise - one that's expected to contribute as much as $82 billion to the U.S. economy. It involves a controversial military technology. Over the past year, venture capital firms have poured tens of millions into virtually every startup in this sector... But there's one publicly traded company that could easily trounce them all. Click here to get all the details. Two-Minute Retirement Solutions Get Ready for Big Losses… Unless…   Click here to post a comment on WealthyRetirement.com You are receiving this email because you subscribed to Wealthy Retirement. To unsubscribe from Wealthy Retirement, click here. To cancel by mail or for any other subscription issues, write us at: Wealthy Retirement Attn: Member Services 105 West Monument Street Keep the emails you value from falling into your spam folder. Whitelist Wealthy Retirement. 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