Trade Alert (Dec 21) – Bought SDLP shares

I bought 800 shares of SDLP at $3.39 US / share. I’ve been invested in SDLP once before and never questioned the strength of the business and the strong dividend, but recent weeks and months in the market had a different plan for the stock. The only reason I sold my previous position was because of the weakness in the oil market.

While the continued weakness in the oil market definitely did not help SDLP, this stock also got slammed due to it’s high debt levels and market speculation of a dividend cut. On Dec 18, SDLP announced that the current dividend of $0.5675 will be reduced to $0.25 per share.

On an annual basis, the reduced dividend converts into a 29.5% yield at the price I bought. Even at a 20% yield the stock should be at $5. At current prices, this stock seems extremely undervalued. With the reduced dividend, it can definitely carry its balance sheet and I believe it’s a good time to accumulate given the strong order backlog and the new fleet they’re running compared to their competitors.

Any rebound in prices of oil should help sustain the price of SDLP. How long I hold this trade will all depend on the news about the oil market over the coming months. If we have a big run up with no significant shift in the oil market, I will consider selling my position. If the situation for oil improves I will consider holding the trade longer term.

From a technical perspective the stock is oversold. Every passing day that the stock holds its value or closes up should be a positive change on the technical indicators, which I can only hope will bring positive price momentum.

Daily chart

SDLP_Dec 21_Daily

Weekly chart

SDLP_Dec 21_Weekly