This is a teaser pitch that Ian Wyatt has been making for some time for his High-Yield Wealth newsletter, but it’s been about two years now since I first saw and wrote about this pitch …

… and he is still pretty aggressively spreading this particular gospel, with the latest urgent rush to buy the stock by August 6 (today!) to make sure you get in on their next big payout …

… so I thought I oughtta take another look for you and see what he’s teasing now.

Here’s how the ad begins, this is an ad that I’ve received in my email as recently as yesterday:

“Find out about this company in time for the next payment — August 6th….

“It’s no secret that oil companies are doing very well these days.

“The fact is some are doing even better than what’s officially reported.

“I’ve analyzed many oil stocks and found one company that has delivered regular dividends more than 10x the published rate.

“They’ve been doing it consistently, including delivering dividends worth 20x the published rate one year.”

So that sounds pretty familiar — almost exactly the same as the pitch we saw back in 2011. Is it the same company? Here’s some more:

“The story of this oil company begins with two billionaires in the early 1990s (doesn’t it seem like billionaires and oil always seem to go together?). Their names are Bob and Larry. They are billionaire brothers who wanted to put their money to work for them.

“So they looked for a business that produced hefty dividends. They found it and got in at the right time. The business?

“Offshore oil drilling.”

OK, so yes, this is still teasing the same company. Do I just let the cat out of the bag early on here? OK, it’s my birthday and I’m feeling generous: This is (still) Diamond Offshore (DO).

Diamond Offshore is an offshore drilling company, they own and operate floating and jack-up drilling rigs that are contracted out to oil and gas explorers and producers. And they are a publicly traded subsidiary of Loews Corp (L), the insurance-and-other-stuff holding company controlled by the billionaire Tisch family and run by a couple of the Tisch brothers. Loews owns just over 50% of Diamond Offshore, and part of the way they earn money from that asset to feed the holding company is by paying out substantial dividends from DO’s cash flow.

And yes, Diamond Offshore has paid large “special” dividends very consistently for many years — they have an “official” dividend of 50 cents per year, which would put make the yield look paltry at an annual 0.7%, tiny even compared to Transocean (RIG), which just restarted its dividend under pressure from Carl Icahn. But it’s really just a desire to avoid commitment — if they pay a variable special dividend on top of that 12.5 cents per quarter then they can pay out a much higher dividend but also not have to say that they’re cutting the dividend when the special dividend happens to be smaller than the previous quarter. Not that you can’t cut your dividend whenever you want — dividend payments are entirely voluntary for most US companies — but investors hate dividend cuts and tend to punish the companies who announce them.

Does the special dividend fool anybody? Well, not really — it’s not reported as part of the yield in most free websites and many stock screeners, so if you check the Yahoo Finance page for DO you’ll see just the 0.7% yield, but anyone who seriously analyzes or invests in oil services stocks will know that they’re buying DO because it’s a high-yielding and relatively risk-averse (at least when it comes to committing capital) offshore drilling company that really has a current dividend of $3.50 per year for a yield of a little more than 5%. And people clearly buy and sell this stock and value it based in part on the yield, “secret” or not — when they had a quarterly payout of $2, the stock got up to near $140 pre-crisis … when they cut the dividend to (eventually) the current 87.5 cents per quarter in 2010, the stock dove to $60. The dividend has stayed at the same level for three years now, and the stock has been in a range between the low-$70s and the high-$50s for most of that time. It’s at about $67 today.

So that puts DO right in between Seadrill (SDRL), which is my favorite offshore driller and also the most aggressive large offshore driller when it comes to using leverage and ordering rigs on spec, and Transocean (RIG), which is the other very large player in the space. Seadrill has a current yield of about 8% and has consistently raised the dividend whenever possible, sometimes several times a year, but they also focus on payouts so much that it makes some folks scared, they pay out substantially more than their earnings; Transocean canceled their dividend because they were worried about their reinvestment needs last year, then restarted it this year and are indicating a forward yield of about 4.5%.

Diamond Offshore is, as teased by Wyatt, more exposed to Brazil than most of the big players. They do have 10 semisubmersible rigs and one drillship currently working in Brazil, including some relatively new rigs built over the last ten years and several of the prior generation, much shallower water rigs that were built in the 1970s and 1980s, though many of those have been substantially upgraded over the years.

And they do have a very large fleet, indeed — not as many ultra-deep water rigs as Seadrill (SDRL), or as the other international mega-driller, Transocean (RIG) but a large fleet nonetheless.

In a bit of a strategic change of direction for Diamond Offshore, they’ve gotten somewhat more aggressive with their fleet renewal over the past couple years — instead of just upgrading old rigs and occasionally ordering a new rig if they had a contract in place, they have followed the more aggressive lead of Seadrill and others in ordering up a few next generation rigs for delivery over the next two or three years, and most of them don’t yet have contracts in place — presumably because they’re waiting for those near-$600,000 dayrate offers to come over the transom.

The demand for ultra-deepwater rigs with modern specs (and the newest safety equipment) is so high that these rigs and drillships that can drill through two miles of water and five miles of rock are getting dayrates in that neighborhood again, the high $500K and up range, depending on location and capacity (those that can handle harsher conditions, like the North Sea or the Arctic, are getting even more) … but the rigs that were “next generation” twenty years ago, that can drill in less than a mile of water, are fortunate to earn half that much and many of the older ones have reached the end of their lucrative lives (Diamond Offshore has a few older “floaters” stacked — a floater is a rig or drillship that doesn’t anchor itself on the ocean floor like a “jackup” does, so any rig that can handle water depths of 500 feet or more is a floater, and “stacked” means it’s been drydocked or put aside because no one wants it or it needs too much work to make it worthwhile to refurbish the rig).

Diamond Offshore has existed to wean cash flow out of a fairly old fleet for a long time, in my opinion, and they’ve therefore been pretty conservative with the cash and haven’t built up the massive debt levels that Seadrill or Transocean have — so that’s admirable, but it also means they don’t necessarily get to ride the full spike up when day rates climb and demand increases for the most capable deep water rigs. The rigs they have on order will likely require some debt to be added to the balance sheet over the next two or three years, but they’ll still be far less levered to dayrates and interest rates than most of their competitors. I’ve owned Seadrill for many years and am continuing to reinvest the constantly growing dividends in that cash-flowing machine, but it’s also true that it pays to be nimble when investing in these boom and bust industries — if capacity increases to the point that day rates for high-spec rigs start to fall consistently, those invested with the more conservative players who don’t have large debt service issues will probably sleep better. And it doesn’t necessarily have to be a capacity crisis or an industry-specific crisis like the 2010 oil spill — during the financial crisis Diamond Offshore did better than Seadrill for a brief while, too, falling only 50% when SDRL fell more than 75% thanks to their heavy debt burden, but SDRL has more than made up for that while DO shareholders over the last five years have done little better than break even, including the dividends. I don’t think the day of reckoning for the deepwater drillers is here, or is threatening to come very soon given the huge demand still for exploration in the deep oceans around the world, but I do expect it to come someday.

Oh, and yes, today is the day that DO has announced “shareholders of record” will receive the latest dividend, which usually means the stock has been trading “ex dividend” for a couple days — you’re not actually a shareholder of record until the stock purchase settles, the standard would be for the stock to trade ex dividend (without the right to the dividend) for two days prior to the “record” date. So no, you can’t buy the stock today to get the current 87.5 cent dividend, even if you really want to … though they’ll probably pay out a similar dividend in three months.

So you’ve plenty of time before they’re likely to announce the next dividend — I’ve seen no indication that they’re likely to increase the dividend, particularly with the need to pay for the rigs they have on order and their general focus on limiting debt and interest expense, but they certainly could raise it if they wanted to … you can read the tea leaves in their latest conference call transcript here if you like — that quarter was announced in late July, so we probably wont’ hear much detail from them again until mid-October.