Knightsbridge Tankers (VLCCF) is one of the most consistent dividend payers in the shipping tanker industry that you may never have heard of. It currently offers a quarterly dividend of 17.5 cents per share, which annualizes to $0.70 for the year. On its current share price of $5.81, this is a 12% dividend yield. All references to financial data, etc., in this article (unless stated otherwise) are from the company's most recent Form 6-K filed with the SEC.
The Company's Fleet:
Knightsbridge's fleet consists of four Capesize (drybulk) vessels and two VLCC's (very large crude carriers). As recently as last quarter, the company had four VLCC's in its fleet. However, the company recently completed the sale of two of the VLCC's, at a loss, due to extremely low charter prices in the VLCC market. For example, daily charters for the company's VLCC's in the latest quarter were $1,100 compared to $22,000 for its Capesize vessels.
Latest Quarter Operational Results:
The company reported a large, headline-grabbing loss of $57 million in its latest quarter. However, most of this loss resulted from impairments on its VLCC vessels, which breaks down as follows:
$12 million loss on the sale of VLCC Hampstead
$14 million loss on the sale of VLCC Titan Venus
$13.5 million impairment loss on VLCC Kensington
$13.4 million impairment loss on VLCC Mayfair -
- for a total loss of about $52 million.
Ignoring these vessel valuation adjustments and impairments, the company still generated $4.4 million of EBITDA in its latest quarter (or roughly $3.2 million of EBTDA - EBITDA less interest expense - which was approximately $1.2 million). Annualized, this is $17.6 million of EBITDA, which equates to a roughly 12.4% EBITDA yield on its current market capitalization ($17.6 million on a market cap of $142 million). Therefore, absent further declines in the business, the company appears to have EBITDA roughly equal to (with, admittedly, EBTDA currently slightly below) dividend payments.
Management's Dividend Policy:
How does one know that the company will not cease paying dividends, even if the business deteriorates? Certainly dividends are payable at the discretion of management, and are never mandatory. However, in the past management has made its dividend policy crystal-clear: the Knightsbridge board will pay dividends out of EBITDA, never using earnings to purchase ships, unlike other tanker companies. The company always purchases ships with either proceeds generated from additional shares of stock to the public, or with proceeds from the sale of existing vessels (conversely, the company does not pay dividends with proceeds from the sale of existing vessels).
Our dividend policy is to declare quarterly dividends to shareholders, substantially equal to net cash flow in the reporting quarter less reserves that our Board may from time to time determine are necessary, such as reserves for drydocking and other possible cash needs. We intend to finance our future vessel acquisitions not from our cash flow from operations, but from external sources, such as by undertaking equity offerings, incurring additional indebtedness in line with our current low-leverage capital structure and utilizing the proceeds from the sale of our vessels.
Source: 2011 20-F, page 20
Also, the company has an outstanding, consistent, history of dividend payments, paying dividends every year since its IPO. As you can see from that link, the company's dividends fluctuate (in line with earnings), so if earnings ever increase due to a rebound in the Capesize market, the company will also increase its dividends.
That's not to say the company is without risk, like all companies are. The biggest risk is a further decline in charter rates for the Capesize market. Readers will have to weigh these risks themselves. However, it appears that the company has modest leverage, and much less leverage than most other shipping/tanker stocks.
As of the most recent quarter, the company had cash on hand (excluding restricted cash of $15 million) of $67 million, short-term assets including vessels held for sale of about $131 million, and about $298 million of other vessels on its books, for total assets of about $432 million. This compares with debt (short and long-term) of about $137 million, and book value of equity of $282 million (after the impairment losses). Market value of equity is currently about $140 million.
This company appears to be more conservatively financed than most other shippers, with a debt to equity ratio of 50% and a debt to asset ratio of about one-third. Most other shippers have more leverage.
The company is currently profitable and appears able to afford dividend payments, is conservatively capitalized especially when compared to other shippers, sports a 12% dividend yield, and owns some valuable assets, especially cash and vessels. The company also has a long, consistent history of dividend payments and a clear dividend policy expressed by management.
Dividend investors hungry for yield should consider, after their own due diligence, possibly adding Knightsbridge to their portfolios.