Booming Dividends In The Crude Oil Tanker Business

Published Thu, 14 Jan 2016 23:30 CET by

Crude oil tanker stocks can be a great way to boost the yield of an investment portfolio. Especially, for investors who like diversification, these investments are ideal to offer an additional income and trade off the losses incurred by other stocks. However, before selecting crude oil tanker stocks, investors need to be aware of how the oil tanker industry operates as well as the pros and cons of each company since the tanker business can be highly risky.
This article discusses three small caps that operate in the Crude Oil Tanker Industry. All three companies have an average dividend yield of 11.2%, which is above the industry average of 7.52%, and an average payout ratio of 144%, slightly lower than the industry average of 187%. Even more impressively, their average beta is 0.96 and their average debt-to-equity ratio is 1.02, suggesting financially healthy companies with effective debt management. Finally, they all trade well above their 52wk low and are expected to outperform the NYSE.

Nordic American Tanker, Seaspan and Ship Finance International YoY Stock Performance Graph
Nordic American Tanker (NYSE: NAT) is a Bermuda-based international tanker company that engages in the acquisition and chartering of double-hull tankers through its subsidiaries, Scandic American Shipping Ltd. (Scandic) and Orion Tankers Ltd (Orion). Currently, Nordic American Tanker owns and operates 24 Suezmax crude oil tankers, including two new buildings under construction of 156,000 average deadweight tonnage (DWT) each.

Q3 2015 Financial Highlights: Revenues reached $66.7 million, up 63% YoY from $41 million with gross profit margin reaching 76.4% from 60.9% in Q3 2014. Operating expenses were down 5.4% to $37.6 million from $39.8 million, thereby generating an operating income of $29.1 million, up 2406.9% YoY from $1.16 and a net income of $25.8 million, up 5281.3% YoY from $0.48 in the same quarter last year. In addition, Nordic American Tanker’s debt-to-equity ratio of 0.28, below the industry average, suggests effective debt management at all levels.

Dividend Strength: Nordic American Tankers delivers an annualized dividend of $1.52 or 11.4% dividend yield at a payout ratio of 163%. On January 13, the company has announced a cash dividend of $0.43 per share to shareholders to be paid on or about February 10, 2016. This is the 74th consecutive quarter that Nordic American Tankers delivers a strong dividend while its DPS growth is 12% since 2000.

Future Outlook: For the coming quarters of 2016 Nordic American Tankers is expected to be a key player in the tanker industry. The company has grown its fleet in 2015 without taking on new debt and its tested efficiency will be based on strong operational results, homogenous fleet, and great customer relationships. Analysts estimate an average EPS of $1.22 through 2017, up 30.8% from current the EPS of $0.93.

Seaspan (NYSE: SSW) is a Marshall Islands-headquartered independent charter owner and manager of container vessels in Hong Kong. The company’s fleet consists of 118 container vessels, out of which 19 are newly-built scheduled for delivery to the company and third parties through October 2016. Seaspan also provides limited ship management services to Dennis R. Washington’s personal vessel owning companies and ship management and construction supervision services to GCI, while its customer base includes COSCON, HL USA, Hapag-Lloyd, K-Line, MSC, and Maersk, among others.

Weak Q3 2015 Results: Revenues climbed to $212.9 million, up 14.5% YoY from $185.9 million in Q3 2014. However, operating expenses increased 20.7% YoY to $119.1 million from $98.7 million, generating an operating income of $93.8 million, up 7.5% YoY from $87.2 million, but the net income fell to $20.5 million from $65.4 million, a 68.7% YoY decline compared to the same quarter last year. Gross profit margin remained in line, 76.8% from 77.7%.

Future Outlook: Seaspan’s core focus remains on the design, ownership and chartering of large, fuel-efficient container vessels that will allow the company to return shareholder value to its stockholders. Through diversification of capital structure, Seaspan has been consistently increasing its common share dividend demonstrating a DPS growth of 276% in the past six years. For the coming years, analysts expect an average EPS of $1.14, up 18% from the current EPS of $0.97 and an average earnings growth rate of 14% through 2020.

Name Price ($) 52 wk low 52 wk high 52 wk low % 52 wk high % Market Cap ($ b) P/E D/E Beta Payout Ratio
Nordic American Tanker 13.33 9.15 17.45 45.68% -23.61% 1.19 14.34 0.28 0.92 163%
Seaspan 15.05 14.02 20.67 7.35% -27.19% 1.51 15.56 1.74 1.09 155%
Ship Finance International 14.26 13.00 17.80 9.96% -19.89% 1.37 8.92 1.05 0.86 115%

Ship Finance International (NYSE: SFL) is a Bermuda-based chartering company, engaging mainly in the ownership and operation of vessels and offshore related assets. Through its subsidiaries and branches located all over the world, including Cyprus, Liberia, Malta, the Marshall Islands, Norway, Singapore, and the United Kingdom, Ship Finance operates 19 oil tankers, 14 dry bulk carriers, 17 container vessels, two car carriers, two jack-up drilling rigs, three ultra-deep-water drilling units, six offshore supply vessels and two chemical tankers.

Mixed Q3 2015 Results: Revenues climbed to $92.0 million, up 26.1% YoY from $73.0 million in the same period last year, while gross profit margin was 71.7% from 60.5%. On the downside, operating expenses skyrocketed to $75.3 million from $42.2 million, a 78.4% YoY increase, thereby lowering operating income by 45.7% YoY to $16.7 million from $30.8 million in Q3 2014. Yet, the company reported a net income of $67.9 million, up 203.8% YoY from $22.4 million in the same quarter of 2014.

Dividend: In the third quarter of 2015, Ship Finance has increased its dividend to $0.45 per share, thereby delivering an annualized dividend of $1.80 or 12.3% dividend yield and 115% payout ratio. The company is delivering dividend for 47 consecutive quarters and has a DPS growth of 28.6% since 2004.

Looking Forward: Ship Finance has agreed to acquire several large containerships to be delivered in 2016 and 2017. Combined with the company’s divestment strategy to renew and diversify the fleet, Ship Finance is expected to dominate the current strong tanker market. Looking forward, the company has significant investment capacity available for new accretive investments. Analysts estimate an average EPS of $1.97, up 25.3% compared to the current EPS of $1.57.

Previous articles about investing in crude oil tanker stocks:

3 Dividend Tankers with Growth Potential
Stormy Seas Yielding Big Dividends