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Onshore contract driller Nabors Industries Ltd. (NBR - Analyst Report) has announced it will start paying out a portion of its earnings in the form of shareholder dividends. The Barbados-based company initiated its quarterly dividend at the rate of 4 cents per share, making the annualized dividend payout 16 cents per share. The first installment is payable on Mar 28, to shareholders of record as of Mar 11, 2013.

Nabors, which reported better-than-expected fourth quarter earnings on Feb 19, has bolstered its long-term earnings and cash flow visibility on the back of the company’s strong operational execution as well successful implementation of certain strategic actions.

We believe that the dividend start-up not only highlights Nabors’ commitment to create value for shareholders but also underlines the energy equipment supplier’s healthy financial condition and confidence in its business going forward.

Nabors, which ranks ahead of Patterson-UTI Energy Inc. (PTEN - Analyst Report) as the largest North American land drilling contractor, currently retains a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

With leading positions in most natural gas and oil-based shale plays, we expect the company to benefit from higher activity and pricing. The ‘Superior Well’ acquisition has further enhanced Nabors’ earnings visibility by expanding its pressure pumping capabilities and geographic foothold.

However, we remain concerned about weak natural gas fundamentals, which are likely to limit the company’s ability to generate positive earnings surprises. The recent weakness in the North American onshore rig count has also remains an issue.

In the meantime, one can look at downstream operator NGL Energy Partners L.P. (NGL - Snapshot Report)) and energy explorer Range Resources Corp. (RRC - Analyst Report) as attractive investments. Both these firms – sporting a Zacks Rank #1 (Strong Buy) – offer value and are worth accumulating at current levels.

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