SFL (SFL) Plunges 3.34% as Dividend Cut Signals Financial Strain Amid Drilling Market Woes

SFL (SFL) declined 3.34% intraday on October 10, 2025, marking its lowest level since April of the same year. The stock has now fallen 10.45% over five consecutive trading days, driven by a combination of operational and market-specific challenges.

The immediate catalyst for the selloff was SFL’s announcement to reduce its quarterly dividend from $0.27 to $0.20 per share. The cut, attributed to reduced cash flow in the drilling rig segment, signaled financial strain to investors. Despite a modest earnings beat in the second quarter, the move underscored vulnerabilities in the company’s energy division, particularly the underutilized Hercules drilling rig.

The Hercules rig remains a key liability, operating in a "warm stacked" state due to oil price volatility and weak demand for drilling services. CEO Ole B. Hjertaker highlighted that these market conditions have delayed new contracts, leaving the asset unprofitable. The energy segment contributed just $7 million to adjusted EBITDA in the quarter, contrasting sharply with the $97 million from the shipping division.

To address cash flow constraints, SFL has prioritized fleet optimization, including the sale of older vessels for over $200 million. While this strategy aims to improve liquidity, it reflects a strategic pivot away from high-risk energy assets. A five-year charter extension with Maersk added $225 million to the backlog, stabilizing the shipping segment, which accounts for 87% of charter revenue. However, this growth has not offset energy-related losses.

Ongoing oil price volatility and geopolitical tensions continue to cloud the drilling market, limiting SFL’s ability to secure higher-margin contracts. Analysts note that the company’s reliance on the energy division exposes it to macroeconomic risks, raising concerns about long-term profitability. Investors are now closely monitoring SFL’s capacity to sustain its dividend and execute its fleet renewal plan amid persistent market uncertainty.