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Has Noble Taken The Right Decision To Cut Dividends By 60%? (Hint: Yes)

Noble Corporation has recently slashed its dividend by 60%, but the stock barely moved.

Noble’s management did a commendable job of reading the market’s sentiment and making a well-timed decision unlike its rival Seadrill.

Noble is actually one of the best-positioned drillers in the downturn - which is why some analysts have questioned the dividend cut.

But I believe the company has made the prudent decision to preserve its biggest strengths as it braces for the worst.

On Friday, offshore driller Noble Corporation (NYSE:NE) declared a quarterly dividend of $0.15 per share, which was 60% lower from the previous payout. You would think this double-digit yielder would sink following the news of the massive cut, but surprisingly, the stock has remained largely unchanged. On Friday, the company's shares fell by just 0.5% and are currently hovering near $13 at the time of this writing. That's exactly where they were when the markets closed on Thursday.

The dividend cut has brought the yield down to just 4.6% from 11.5%, but the reduced yield is actually higher than Noble's historical average (last five years) of 2.7% as well as the peer average of 4.1%, according to data from Thomson Reuters. The stock's reaction following the dividend update also shows that the reduction was largely priced into the shares, which also explains the lofty double-digit yield.

Noble's management also did a commendable job of reading the market's sentiment and making a well-timed move, unlike its rival Seadrill (NYSE:SDRL) which abruptly suspended dividends...


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