Core Laboratories Boosts Dividend - Analyst Blog

Oilfield services provider Core Laboratories N.V. (CLB) raised its quarterly cash dividend to 25 cents per share ($1.00 per share annually), partly reflecting a decision to continue with its practice of paying an annual special dividend into its quarterly payouts.

On an annualized basis, the new dividend – payable on February 25 to shareholders of record as on January 25, 2011 – represents a 12% hike compared to the total dividend of 89 cents per share paid in 2010 that comprised four 6 cents per share quarterly dividends plus the 65 cents per share special dividend paid in August 2010.

The dividend increase announcement gives us a fair view of Core Laboratories' strong liquidity position. The company's low capital expenditure requirements and service-oriented nature differentiates it from its peers who are capital intensive and devote around 10%-15% of revenue to capital expenditure needs; Core Laboratories only spends around 3%–4%.

Core's limited capital expenditure spending, plus the leverage and scalability of its worldwide operations have enabled the company to generate significant amounts of free cash flow. This provides Core Laboratories with the opportunity to create value for shareholders through stock repurchases and dividend payouts.

The dividend policy also signals Core Laboratories' intentions to phase out its special cash dividend in favor of four equal, consistently-distributed payouts to shareholders, thereby smoothing out the dividends.

Amsterdam, Netherlands-based Core Laboratories is an oil services firm that provides reservoir management and production enhancement services to the oil and gas industry on a global basis. The company operates in over 50 countries and divides its operations in three principal business lines: Reservoir Description, Product Enhancement and Reservoir Management.

Even though Core Laboratories has a Zacks #2 Rank (short-term Buy rating) in the short run, we are Neutral on the shares in the longer term.

We like Core Laboratories' leadership position in the reservoir optimization niche, along with its global footprint and deep portfolio of proprietary products and services. Furthermore, the company's low asset intensive operations and limited capex needs allow it to generate substantial free cash flows.

However, the uncertain commodity-price outlook along with the soft global economy and the erosion of oil and gas demand continue to weigh on the company. We believe that Core Laboratories' current valuation adequately reflects its fairly balanced risk/reward profile. As such, we see limited upside from current levels and maintain our long-term Neutral recommendation on Core Laboratories shares.

Core Laboratories competes in the ‘Oil and Gas Equipment and Services' industry, primarily with independent regional companies and divisions of major service providers like Schlumberger Ltd. (SLB) and Halliburton Co. (HAL).

 
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