Seeking Alpha
Large-cap, deep value, dividend investing, event-driven
Profile| Send Message|
( followers)  

Summary

  • On July 28, STNG posted a Q2 EPS loss of $0.06/share which was $0.02/share worse than what the street was expecting.
  • Included in STNG's earnings announcement was a $6.7 million increase in TCE revenues, which will continue to rise as long as STNG continues to enhance its existing fleet.
  • STNG also announced it would be increasing its quarterly dividend by 11.1% and initiating a $150 million share buyback program.

Since one of my primary investment objectives revolves itself around the generation of income, dividend-related events are always something I tend to keep an eye on. It is these types of events that have a tendency to influence my decision in terms of which stocks I should keep on my radar and which ones I should not. With that said, and in the wake of its latest dividend increase, I wanted to highlight several reasons why I've chosen to stay bullish on shares of Scorpio Tankers (NYSE:STNG).

Recent Dividend Behavior

On Monday, July 28, Scorpio Tankers announced a quarterly dividend increase of $0.01/share, which brings its upcoming dividend payout to $0.10/share. It should be noted that the increase will be paid on September 10 for shareholders of record as of August 22. This boost represents an 11.1% increase from its prior dividend of $0.09/share, which was paid to investors on June 12.

Based on the company's dividend behavior over the last 18 months, it should come as no surprise that I foresee its next quarterly dividend hike will take place in the fourth quarter of 2014, and that I expect that increase to be at least $0.01/share but no more than $0.02/share.

New $150 Million Stock Buyback Program

One of the best ways to enhance shareholder value is through a share buyback program and in the case of Scorpio Tankers, the company's recently announced $150 million buyback plan does just that. The new stock buyback program authorizes the purchase of up to $150 million worth of shares of the Company's common stock and replaces the stock buyback program that was previously announced in June 2014, which is being terminated effective immediately.

Scorpio Tankers Demonstrates A Solid Second Quarter

Along with its recently announced dividend increase, Scorpio Tankers also reported the results of a fairly solid second quarter even though results failed to meet analysts' expectations. Analysts had been expecting the company to post a loss of $0.04/share; however, STNG posted a loss of $0.06/share on revenue of $57.45 million. It should be noted that the net loss per share excludes a gain of $10.9 million, or $0.06 per share, resulting from the previously announced acquisition of 7,500,000 common shares of the Company in exchange for 3,422,665 shares of Dorian LPG Ltd ("Dorian"), a write-off of $0.3 million, or $0.00 per share, for deferred financing fees relating to the repayment of the STI Spirit Credit Facility in April 2014 and an unrealized gain on derivative financial instruments of $64,769, or $0.00 per share.

One of the factors that stood out most for me during the quarter was the fact that Scorpio demonstrated a $6.7 million increase in its TCE revenue. Time charter equivalent, or TCE revenue is vessel revenues less voyage expenses (including bunkers and port charges). During the second quarter the $6.7 million increase was primarily driven by an increase in the average number of operating vessels (owned and time chartered-in) to 49.3 from 34.9 for the three months ended June 30, 2014 and 2013, respectively.

It should also be noted that Scorpion Tankers demonstrated promising vessel-related activity throughout the quarter. In April of 2014 the company closed on the sale of two vessels (the Senatore and the STI Spirit) and in July 2014 the company delivered four additional vessels (one LR2, two MR, and one ice-class 1A Handymax) which adds to its quarterly total of eight vessels (six MR and two ice-class 1A Handymax) during Q2 2014. If the number of vessel acquisitions and deliveries continue to increase throughout the remainder of 2014 and into the first half of 2015, I see no reason why the company would be unable to demonstrate solid growth over the next 12-18 months.

Conclusion

For those of you who may be considering a position in Scorpio Tankers, I'd continue to keep an eye on the company's dividend behavior over the next 3-6 months (especially since I see at least one more increase before the end of the year), its vessel-related activity (as such activity has the ability to enhance long-term earnings growth), and its TCE revenues (which are driven by the average number of operating vessels, and anytime the average number of operating vessels increases there's a good chance its TCE revenues will also increase).

Source: Scorpio Tankers: Staying Bullish In The Wake Of Recent Earnings And A Dividend Increase