The Petrofac Limited (LON:PFC) (PFC.L) share price fall of 55% in the last 3 months has clearly been hugely disappointing for its investors. While much of the stock market has risen and performed well, the Petrofac share price has been hurt by news of the investigation by the Serious Fraud Office (SFO).
The fall in price of Petrofac shares has meant the company now has a dividend yield of over 12%. I cannot find any mid or large-cap share which has a dividend yield that comes close to that figure. If the company can pay a 12% dividend each year, it would pay back an investor’s initial investment at the current price level within about 8 years. That’s an incredibly short payback period in my view.
Of course, there is a good reason why Petrofac has such a high dividend yield. As mentioned, it is being investigated by the SFO, and I feel this could lead to significant share price volatility over the short run. Although the company’s shares have performed well of late, there is no guarantee that there will be positive news flow regarding the SFO’s investigation. For me, that makes the company a relatively high risk investment.
I’m always cynical and suspicious of companies with sky-high dividend yields. From my experience, it can mean a dividend cut is on the way and investors have already begun to price it in. While Petrofac may be able to pay dividends following the winning of multiple contracts in recent weeks, it’s a stock I’m watching but not buying at the moment.
With a number of other companies operating within the oil & gas sector offering what I see as bright futures due to the potential for the oil price to make a comeback, I think there may be better investment opportunities available elsewhere. Therefore, while it is the highest-yielding stock I can find, Petrofac is not on my buy list just yet.