Nordic American Tanker Pays Off Yet Again

Nordic American Tanker (NAT) has announced their 3rd quarter results and declared a dividend of $1.61 per share payable to shareholders of record on Nov. 21. NAT has now paid a total of $4.89 for the past 4 quarters. The company has now paid a dividend for 45 consecutive quarters.

NAT is the easiest company I know to understand and the hardest to predict results for more than a quarter down the road. Nordic American has a fleet of about a dozen Suezmax oil tankers that they contract on the spot market. It works to keep its per ship expenses very low and pass all free cash flow earnings on as the quarterly dividend. The company currently has no debt and 2 tankers on order.

It is unpredictable because revenues and the dividend fluctuate right along with the spot market rate for Suezmax tankers. Over the last few years I have seen the daily rate fluctuate from under $20,000 per day to over to $80,000 per day. NAT’s dividend has ranged from 40¢ to $1.88. For the last 4 years the dividend has averaged $1.17 per quarter.

Since we are almost half way through the 4th quarter I will predict the next dividend will come in at $1.40 to $1.50. I base my assumption on what little information NAT gives out and keeping an eye on the spot rate for Suezmax tankers.

Disclosure: NAT is a component of this site’s Income and Opportunities Portfolios and I hold the stock in my own account.

Comments

[bryanz:]

did the big drop in the price of oil not negatively impact the spot rate for suzemax tankers? were all the tankers that NAT owns already committed at that time? it's been easy to sit back and collkect the divs that NAT pays out... but the big div yield still doesn't cover the bigger drop in share price that NAT and FRO have experienced lately.

2008 Nov 08 03:44 PM

[Tim Plaehn:]

Tanker spot rates do not correlate directly with oil prices. It is more of a case of who needs oil where. Also, NAT and FRO are different beasts. NAT is strictly Suezmax, while FRO is mostly super tankers. Different markets, different rates.

Currently the market seems to be clueless about high yield stocks in general.If NAT can average $1.00 per share for the next few quarters, you would be earning 13%. As you can see in my article they are averaging closer to $1.20 over the last 4 years.

Spot tankers spot leases typically average 30-60 days. NAT has ships being released regularly. Spot rates averaged $54k for October and is back in the $63k range currently.

2008 Nov 09 08:34 AM

[grbn:]

I've been with NAT through good times and bad and the bad times aren't that bad. The CEO signals his moves with "Letters to the Shareholders" and CNBC interviews and practically pre-announces the div. And even if the 20% yield is cut in half that's still really good.

2008 Nov 09 02:20 PM

[henarl:]

Bryanz: I do not own tanker companies like FRO and NAT for capital gains but rather for the income they generate. You can boost this income in a bear market like this by selling covered calls on the way down. Because of the high volatility of these companies, their option premiums are quite high. I have achieved 44% income returns in the past year on FRO combining dividends with covered call option premiums. With that kind of income stream, I don't worry much about current share prices, only about continuing dividends and volatility. Long FRO and OSG.

2008 Nov 09 02:29 PM

[Pessimistic...:]

Just saw the CEO on CNBC.. very optimistic, which is about normal for the company. They are backlogged to beat hell( like many infrastructure /oil service plays) and other companies are coming to them asking to be bought. Recently made nice profit on Fro's volatility albiet I wasn't long the stock. It drops below 28 I am on it again. 40 plus % yield.. I need to exhibit patience.. the virtue

2008 Nov 09 10:26 PM

[Ben92126:]

Tom, could you please confirm I've done this correctly. I'm kind of new to this.
If I buy 39 shares at todays closing price of $31.14 then on Dec 2nd I would receive $62.79 ($1.61 x 39) in dividends. That is a return of 5.17% on the $1214.46 in just 4 weeks. Then I could purchase 2 more shares (assuming the price doesn't change) and now have more for the next dividend.
Why doesn't everyone do this if you already know what the return will be? What's the risk (besides the stock price falling)?

2008 Nov 10 06:34 PM

[bryanz:]

So with a stock like FRO, what's the incentive (unless it's contractual) to pay out at 40%?

2008 Nov 12 01:31 PM

[JET1C:]

How can anyone complain about getting an 8% annual dividend? During 97 NAT paid $2.81 and their average share price was ~$35. And you say that you would prefer an good stable dividend with your investments, maybe on the order of 0.9%. Give me a break, This year their dividend is $4.89 and their average price is more like $33. That's 14.8%. I can't stand this uncertainty!
The company model is that the pay out 90% of their net profit in dividends to the unit holders and they have consistantly done that since 1997. Figure out how much you would have had if you had bought $10K worth in 1997 and repurchased units. Better yet, figure out how much you would be into the stock now if you had kept and reinvested the divided in some other profitable stock (or maybe just spent it) for all those years.

2008 Nov 13 10:32 PM

[bilgerat:]

I simply do not understand why more people are not invested in NAT.

The situation as I understand it is that double-hulled Suez Max rates are presently about $40,000 per day.
It costs about $9,500 per day to run each tanker.
This to me spells $30,500 profit per tanker per day.
There are I think 13 tankers in the fleet which means that NAT is earning approx $400,000 each day.
NAT pays out 90% of its earnings in dividends.
NAT has a revolving credit with a group of three Scandinavian banks of $500,000,000.00.
This facility has not been withdrawn by the banks despite the somewhat straightened times that we now endure.
NAT has not drawn down one cent of this $500,000,000.00 facility.
If I am right then this stock seems to be a no-brainer, if I am wrong please will someone tell me. I am fully aware that every so often each tanker has to go into dock for scheduled maintenance, and there is also the piracy risk, but in truth just what is there not love about NAT?

2008 Dec 11 02:39 PM