The oil and gas drilling services industry got hammered when oil prices started to fall in mid-2014. The stocks of both Helmerich & Payne, Inc. (NYSE: HP) and Nabors Industries (NYSE: NBR) lost well over half their values. But oil prices have been trending higher, and work for the drillers has started to pick up again. With their stock prices still far off their 2014 highs, now could be the right time to pick through the industry. Here are four reasons Helmerich & Payne is better than Nabors.
Continue Reading Below
1. The dividend
The first reason to favor Helmerich & Payne is its dividend. The stock yields 4% compared to Nabors' 1.5%. Yield alone is no reason to pick Helmerich & Payne, here, but you would be remiss if you didn't note that Helmerich is paying you more than twice as much to wait for the oil drilling industry to rebound.
A Helmerich & Payne drilling rig at work. Image source: Helmerich & Payne.
The other reason Helmerich & Payne gets the dividend nod is that it has increased its dividend annually for an incredible 44 consecutive years. Nabors' dividend was static in 2015 and 2016, and it only starting paying a dividend in 2013. But the real takeaway here is that Helmerich & Payne has rewarded investors with annual dividend increases despite operating in a highly cyclical industry for over four decades. That's a rare feat in any industry, and Nabors doesn't even come close to matching it.
Continue Reading Below
The second reason to like Helmerich & Payne over Nabors is debt -- or the lack thereof. Helmerich & Payne's debt is less than 10% of its capital structure. Nabors' debt, meanwhile, is nearly 50%. They are basically at opposite ends of the industry spectrum.
Helmerich & Payne has less debt than peers. Image source: Helmerich & Payne.
The key takeaway is that a low debt load increases financial flexibility. That's important in an industry that experiences deep downturns and euphoric upturns. When times are bad, having little debt lets a company like Helmerich & Payne do things like continue to increase its annual dividend. However, it's also important to note what this debt metric shows didn't happen. When times were flush, Helmerich & Payne remained financially disciplined, stayed within its means, and didn't load up on debt that would limit its ability to deal with the next downturn. Once again, advantage Helmerich & Payne.
3. Market share
Helmerich & Payne and Nabors are both key players in the U.S. onshore drilling market, a region that has quickly changed the face of the global oil market. But Helmerich & Payne is the bigger U.S. player, with a market share in the high teens. Nabors' market share is around 10%. While that basically puts it in a tie for second place, it's still far behind Helmerich & Payne.Helmerich & Payne scores another point.
An interesting side note here is that Helmerich has actually been gaining market share at the expense of players like Nabors. Essentially, Helmerich & Payne has focused on building a type of industry-leading rig that has pushed older drilling rigs onto the junk heap. So not only is Helmerich a big player, but its been getting bigger in recent years. And that brings us to point number 4.
Helmerich & Payne is the big dog in U.S. oil and gas drilling. Image source: Helmerich & Payne.
4. Industry leading rigs
Helmerich & Payne also leads on the technology front, with more of the most in-demand AC rigs than any of its peers. These types of drilling rigs are more flexible and efficient than older options. They have been gaining market share in the industry for years and are likely to be the first to get put back to work when drilling activity picks up.
Once again, Nabors comes in second place, here, with around 100 or so AC drive rigs. Helmerich & Payne, which has a focus on building only the most advanced rigs, has more than 300 AC drive rigs. That puts Helmerich & Payne in prime position to benefit early from the next material industry upturn -- and makes four points for Helmerich & Payne.
Helmerich & Payne's technology is better than that of competitors. Image source: Helmerich & Payne.
Despite what I think is a pretty favorable industry position for Helmerich & Payne, it would be untrue to suggest that Nabors is a bad company. Still, if you're looking to get exposure to the U.S. onshore drilling market, Helmerich & Payne should be at the top of your buy list.
However, Nabors might get the nod if you're looking for a company with a global reach. Both have international operations, but at the end of September, Nabors had 169 rigs working, and only 63 were in the United States. The rest were spread across 14 other countries. In early February, Helmerich & Payne had 157 operating rigs, and only 15 weren't dedicated to the U.S. onshore market. That's a point for Nabors if you prefer a company with a broader global reach.
Nabors has a sizable global footprint. Image source: Nabors Industries.
The better U.S. drill option
So, Nabors is worth a deep dive if you're looking for an oil and gas drilling services company with a sizable global portfolio. However, if you're looking for a U.S.-focused company in the space, Helmerich & Payne offers the highest yield, the strongest dividend history, an incredibly strong balance sheet, and industry-leading fleet technology. It's really the best option in many ways. In fact, in looking at that list, you might even decide that Nabors' global reach isn't as exciting as you once thought.
10 stocks we like better than Helmerich and Payne
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now...and Helmerich and Payne wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of February 6, 2017.