Nordic American Tanker: Excellent Long Play for the Income Investor

Nordic American Tanker (NAT) has released its 4th quarter results and declared a 46th consecutive dividend. The dividend will be 87¢, payable to shareholders of record on February 25. For 2008, NAT paid total per share dividends of $4.89 (the 4 dividends previous to this announcement). During 2008 NAT shares started the year at about $33.40, reached a high of just under $42 in May and traded in the $24.50 range during the lows of October before finishing the year at $33.75.

Nordic American Tanker currently owns 12 Suezmax tankers, one on long term charter, the rest are chartered in the spot market. The company has recently purchased another Suezmax tanker and plans to take possession this month. The company has two new buildings on order with estimated delivery dates in the 4th quarter of 2009 and the 2nd quarter of 2010. The additions to the fleet are projected to increase distributable cash flow by 25%. NAT is debt free but recently raised about $107 million in capital by issuing stock and increasing the shares outstanding by 10%.

NAT earned an average of $40k per day per ship in the 4th quarter. Currently Suezmax spot rates are in the $34k per day range. Nordic American Tanker has a break even of about $10,000 per day per tanker. This is the main reason I like this stock. It can be profitable and pay a dividend in any market condition. The company's 11.5 years of continued payouts speaks for itself.

Over the last 5 years the annual dividend payout for NAT has averaged $4.72, ranging from $3.81 to $5.85. Holders of the stock have consistently earned over 10%. An eyeball at the stock chart shows the shares averaging around $35 with buying opportunities when the cost falls below $30. I think NAT is an excellent long term holding for the income investor.

Disclosure: I currently have a long position in NAT.

Comments

[Perry1961:]

Before watching NAT's CEO in the CNBC interview,I had assumed the oil tanker market was suffering along with the rest of the shipping industry. But,demand for oil is only down 1% or so. The CEO was funny when he talked about Chavez shipping his oil to China,and then NAT picks up a shipment elsewhere and heads back to the US. I wish I'd have known about the stock earlier. With markets trading sideways for who knows how long,a 10% dividend is a gift.

Feb 17 04:22 AM

[ArtfulDodger:]

Go NAT!

Feb 17 08:08 AM

[notsosmart:]

FRO dividends paid for all my FRO stocks.

Feb 17 12:37 PM

[elliot_mllr:]

NAT is a fine, well-managed company with NO debt. However, I am too conservative (euphemism for nervous) to buy it because it is a spot-based company. On the other hand, many of the dry bulkers which are time charter based are over-leveraged and are in trouble because of it.

Feb 17 01:45 PM

[poor&unempl...:]

It is boom or bust business. Been there - done that. Lot of talk and very little action.

One fine day - the charters fall apart and the management buys the ships 10 cents on dollar to take them private.

Remember - Shipping is a floating Real Estate in every way possible.

Feb 18 08:30 PM

[poor&unempl...:]

Tim:

Nordic American Tanker has a break even of about $10,000 per day per tanker.
----------------------...

How did you get this number? This is Operating cost number. That does not even include the management salaries, let alone capital costs. If this was such a simple calculation with high margins - why dont they buy all the tankers in the world?

There is very little barriers for entry in ship owning business. Most tanker owners will give you a tall talks about safety and expertise. That is Bull with Big B. Even the individuals in Venezuela and Nigeria own and operate oil tankers. Yes those 2500 ft long. They are mostly crewed by thirld world officers and crews.

Feb 18 08:39 PM

[Tim Plaehn:]

P & E,
Tough to buy all of the tankers in the world at $50 mil a pop. The $10k is from NAT. The stock started this century at $10.75 per share and has paid $35.30 in dividends during the 9+ years since. That is why I like the stock.

Feb 20 12:18 PM

[Mad Hedge F...:]

With 50 million barrels of crude in storage at sea, tanker companies have the buffer they need to weather the first globally synchronized recession. As long has crude for delivery in a year trades at a $10-$15 premium to the spot price, known as contango, this fleet will grow. Slow steaming, or cutting cruise speeds from 15 to 13.5 knots to reduce fuel consumption, is having the effect of taking another 35 million tons of tanker capacity off the market. With a 10% yield, Nordic American Tanker Shipping (NAT) is now the highest dividend paying stock listed on the NYSE, and gives you a pretty safe way to play this anomaly. The stock has no debt, $500 million in unused credit lines, and a bargain PE multiple of 9 X.

Feb 20 12:42 PM

[User 365081:]

Tim Nat'S actual; breakeven is $10500 per day per ship. Nat has only 2 employees. The only major capital cost is drydock repairs, Nat has operated with with no debt and increased its dividend over 2007's 4th quarter and had a 4th quarter profit for 2008. If you can find a better run oil tanker company with a larger dividend and zero debt and a better track record, buy it now. Nat also has a $500,000,000 open line of credit. Nat did issue approx, 8 million new shares of stock by reducing shareholders value by 10% to pay for newly ordered Suezmax ships which will increase dividends by 25% next quarter. Tim, your concerns about safety are noteworthy but hardly relevant.


On Feb 18 08:39 PM poor&unemployed wrote:

> Tim:
>
> Nordic American Tanker has a break even of about $10,000 per day
> per tanker.
> ----------------------...
>
> How did you get this number? This is Operating cost number. That
> does not even include the management salaries, let alone capital
> costs. If this was such a simple calculation with high margins -
> why dont they buy all the tankers in the world?
>
> There is very little barriers for entry in ship owning business.
> Most tanker owners will give you a tall talks about safety and expertise.
> That is Bull with Big B. Even the individuals in Venezuela and Nigeria
> own and operate oil tankers. Yes those 2500 ft long. They are mostly
> crewed by thirld world officers and crews.

Feb 26 03:31 PM

[User 367589:]

How do you think GMR after its acquistion of arlington is completed compares with NAT?

Mar 02 02:23 AM