By Genia Turanova, Leeb Market Forecast

This month, we add Diamond Offshore Drilling (DO) to our Growth and Income portfolio. The company has a compelling yield, an improving growth profile, and its industry is experiencing a recovery.
 
Diamond Offshore owns and operates one of the world's largest fleets of offshore drilling units, including 32 semisubmersibles, 13 jack-ups, and four dynamically positioned drillships -- three of them with expected deliveries between 2013 and 2014.

Its equipment lets the company offer equally diverse worldwide services in both the floater (ultra-deepwater, deepwater, and midwater) and the non-floater, or jack-up, markets.

Often criticized for its older fleet, Diamond Offshore -- in fact -- had been for years investing in its fleet, devoting nearly $4.2 billion to it in new capital since 2009. Since then, the total number of rigs has declined, as the company divested eight jackups and two midwater rigs.

But the focus on ultra-deepwater and deepwater markets has resulted in Diamond having more than doubled its fleet there, from eight to a total of 19. The company focuses on the deep- and ultra-deepwater market because that's where demand and day rates are expected to remain strong for the next few years.
 
At first glance, Diamond Offshore -- as a deepwater driller -- may not look too enticing to most income investors. It's not exactly in a recession-proof business. Its yield, on the surface, does not look very high, either. If you measure the size of its regular dividends, they fall at under 1%.

However, over time the company has consistently paid "special" quarterly dividends. And those dividends, since mid-2010, have held steady at 75 cents a share. Add them, and the annual yield pops to about 4.7%.
 
Since Jan. 1, 2006, Diamond Offshore has paid and declared more than $33 per share in overall dividends. And going forward, the special dividend looks safe, as Loews (L) owns over half of Diamond Offshore -- and like all stockholders -- also reaps the special dividend. Thus, with Loews remaining the majority owner, we think there is little risk to the "special" dividends.
 
Another positive -- compared to its industry group -- is Diamond Offshore's balance sheet strength. The size of its long-term debt is about equal to the total cash it carries on its balance sheet. This, plus the recent debt upgrade, create financial flexibility and further enhances our investment case. Buy Diamond Offshore.

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