Nordic American Tanker Shipping: A Dividend Stock With Strong Technicals

My quest for more dividend paying stocks led me to another category that my partner Frugal wrote about a while ago: oil tanker shipping companies. The short list he gave was: Nordic American (NAT), Frontline (FRO), General Maritime (GMR), and Knightsbridge (VLCCF).

Of the group, I like the current chart of NAT (yielding 15.9%) the most: it bounced off its 200 dma recently within the confines of a well formed triangle.

click to enlarge

Cramer vs. the futures market
On the other hand, Jim Cramer has this to say about Frontline and the rest of the tanker companies (sub. req.):

Frontline and the rest of the big tanker stocks have yields that are can't miss, right? I don't think so. Bloomberg has a great story this morning about how the excessive building in tankers could lead to repossession of the giant ships when the new fleets, the biggest additions in 50 years, hit the market. Big yields are always seductive. I got caught up in one two years ago, Fording Coal, 12%; can't miss. But there's always a price to be paid for these things, and an outsized yield is often more of a red flag than a opportunity. I can't tell you how many times people asked me about these stocks on "Mad Money" when oil was going up. They figured rates had to go up. But these tanker stocks are levered to tanker building's supply and demand, not oil prices. Now oil prices are plunging and tanker rates are...

Depending on your opinion of Cramer, this could be construed as a positive for this sector :-) I couldn’t find the Bloomberg article he was referring to; however, my cursory glance at the Imarex tanker futures which go out to calendar year 2009 did not reveal anything alarming. So I’ll leave you to decide who to believe.

According to its latest letter to shareholders, NAT currently operates 12 double-hull, suezmax tankers with a low break-even of $9,500 per ship per day. The single-hull tankers are facing mandatory phasing out by 2010 (remember Exxon Valdez?). Perhaps the “excessive building in tankers” is related? Anyhow, the chart by itself was convincing enough for me. Crucially, with a clearly defined trend line, it’s easy to figure out where my stop loss should be.

Disclosure: I have a long position in NAT. The usual disclaimers apply.

Comments

[mtmpk]

If earnings are $3.45/shr/yr and dividends are $5.28/shr/yr, where does the $1.83 come from? The Saudis? Kuwaitis? Hmm.....

[Amit Chokshi]

The company has over a $1 per share in depreciation charges (non-cash) so the cash dividend vs accounting earnings is not an issue. The only reason I'd be cautious on NAT vs other tanker companies is because they are completely tied to Suezmax tankers and more importantly they have a history of issuing equity to fund new tanker purchases. With tankers you have a hard asset with real tangible value and a real estimate of potential cash flow from the tanker (just go with a comparable locked price as the floor instead of spot prices for lending purposes) so you should be looking to finance new fleet additions with debt.

[SeekingAlphaEditors]

I question the accuracy of the chart included with this article. All the 1 year charts I found do not agree with the 200 MA. Also they all show a 'low of approx 28 while yours shows under 25 in Mar 06.

How come ?

EM

[M L]

Dear all,

Thanks for all the comments. On the dilution issue, the company now is maintaining $15M per ship according to their latest letter to shareholders. In today's environment of low corporate spreads, that seems a sensible use of money.

EM, the chart is from StockCharts. It seems they have not adjusted for dividends.

ML

[M L]

Sorry, I meant to say that StockCharts accounts for the dividend payments. You can see the discrepancy more clearly by going to Yahoo Finance and check out the "historical prices". The last column with the heading "adjusted close" shows the dividend adjusted prices.