After paying dividends of $2.75 and $3.00 for the first two quarters of 2008, Frontline Ltd. (FRO) has elected to pay only 50¢ for the 3rd quarter to shareholders of record on Dec. 9. As the largest publicly traded oil tanker company, Frontline has been popular with investors due to their generous dividend policy. Since 2001, FRO has paid out over $53 per share in dividends.
As I have cautioned many times when discussing tanker companies, these companies pay out dividends on the amount earned in the quarter by leasing their ships on the spot market. These dividends will vary wildly and the patient investor will be rewarded, but there will be some bumps along the way.
Looking at Frontline’s 3rd quarter numbers, the daily charter rates for their VLCC, Suezmax tankers, and Suezmax bulk carriers were not much below the 2nd quarter numbers. The net income is a little hard to decipher with shares issued, ships bought and sold and some one-time gains and losses in the quarter. My bottom line analysis is that the company is conserving cash rather than continuing the generous payouts. Tanker daily charter rates have started to fall significantly in November and FRO has an aggressive new building program that will require over $1 billion in additional cash or borrowing in the next 3 years.
My interest in Frontline mainly comes as a shareholder of Ship Finance International Ltd. (SFL). Frontline leases the majority of their tankers from Ship Finance (FRO spun off SFL about 5 years ago) and Ship Finance participates in the per ship profits of the leased vessels. I was happy to see the profit sharing paid to SFL in the 3rd quarter was $28.5 million compared to $33 million in the 2nd quarter.
Ship Finance will report earnings later today and I am very interested in their results.The stock has been knocked down by 2/3 recently.
A final note on tanker company and stocks: Frontline is the big gorilla in the tanker market and their long term fleet growth plans will eventually reward shareholders with piles of dividends. However, FRO has a daily break-even of $24,800 for their Suezmax tankers. Nordic American Tanker (NAT) with their small, all Suezmax fleet has a break even of less than $10,000.
Disclosure: Long SFL