Oilfield service provider Core Laboratories N.V. (CLB) announced a 20% hike in its quarterly dividend to 12 cents per share, up from 10 cents. On an annualized basis, the quarterly cash dividend would be equal to a payout of 48 cents per share of common stock. The revised dividend will be effective from the first quarter of 2010, payable on Feb 25, 2010 to shareholders of record on Jan 25, 2010.
The dividend increase announcement gives us a fair view of Core Labs’ 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 Labs 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 Labs with the opportunity to create value for shareholders through stock repurchases and dividend payouts.
However, the current downturn has been indiscriminate in its impact, affecting all oilfield service stocks irrespective of product/service offering, financial health or geographic focus. As such, Core Labs’ business has not been immune to this unfavorable macro backdrop, reflected by the weakness in its North American-centric Production Enhancement segment.
Considering these factors, we rate the company as Neutral.
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