Income investors need to consider Golar LNG (NASDAQ:GLNG) for a growing and full of growth potential dividend. Golar is increasing its dividend as new contracts are established and the global infrastructure for liquefied natural gas (LNG) expands. This article will focus upon Golar's prospects as a core dividend stock. There are three core reasons I believe Golar offers patient investors a significant dividend growth strategy.
Golar is a midstream liquefied natural gas company. The company engages in the transportation, regasification, and liquefaction and trading of LNG. Golar actively purchases, acquires, owns, operates and charters LNG carriers and floating storage regasification units (FSRUs).
Golar LNG is one of the world's largest owner operators of ships that are involved in various aspects of liquid natural gas transportation, floating storage regasification (FSRU) and floating liquefaction (FLNG). Golar's revenue is driven by charter rates for the hiring of its fleet of vessels and floating LNG terminals.
Catalyst: LNG Expansion is a Growing Industry
Golar's business objective is to stay focused on maximizing shareholder value by growing its fleet profitably and building on its industry leading position as a midstream LNG solutions provider by delivering additional Floating Storage and Regasification Unit projects and developing Floating LNG production units.
Golar's competitive strengths include operational excellence, strong customer relationships with some of the biggest players in the LNG industry, vast LNG shipping experience over the past 30 years, technical and commercial expertise, a midstream leadership position, and synergies with LNG-related companies.
Over the past few years, Golar has seen its revenue and earnings drop with the crisis in 2009, only to bounce back higher.
More recently, for the third quarter of 2011, Golar reported revenue of $77.8 million, operating income of $45.5 million and net profit of $13.7 million. Golar reported cash and cash equivalents of $115 million, total assets of $2.26 billion, long-term debt of $730 million and shareholders' equity of $586.7 million. Further, Golar reported increased asset utilization and successful cost reduction in the quarter.
With the third quarter of 2011 results, Golar's board proposed an increased quarterly dividend of $0.30 per share ($1.20 annualized), which reflects the board's positive outlook on LNG shipping opportunities in the near term. With an annualized dividend of $1.20 and with shares trading in the $41.75 area January 20, 2012, Golar's annual dividend yield works out to a 2.87% annual yield.
Here is a history of Golar's cash and stock dividends:
As of January 2012, Golar shares traded in the $41.75 range, with a trailing twelve months price-to-earnings ratio of 90.17x and a market capitalization of $3.35 billion (5.7x times book value). Over and above the dividend, Golar's shares have performed well over the years, rising from approximately $10 in 2003 to $41.75 by January 20, 2012, despite the sharp drop in LNG prices. That Golar shares do not correlate with LNG prices bodes well for the stability of Golar's core revenue streams, tied primarily to LNG shipping rates.
Income investors must recognize a relatively young industry that offers a growing, vibrant dividend income. Golar LNG Limited offers a growing dividend with a strong wind at its back. The world uses natural gas for its own power source. The United States has a significant amount of natural gas to export to the end user. The natural gas is transmitted in a liquefied natural gas form via Golar's vessels and infrastructure.
Golar is a midstream liquefied natural gas company, engages in the transportation, regasification, and liquefaction and trading of LNG. It acquires, owns, operates and charters LNG carriers and floating storage regasification units.
Catalyst U.S. has Abundant Natural Gas Supply
Golar's business outlook is quite positive. Golar derives a fair share of its revenue from LNG vessel charter rates, which will likely continue to climb for the next few years. This is because because the demand for suitable LNG ships continues to outstrip supply. 3Q 2011 saw charter rates in excess of $120,000 per day.
Around 2015, substantial new LNG supply is anticipated from Australia and the Middle East, which will require significant additional shipping capacity. The development of potential U.S. LNG export capacity will further increase demand for LNG shipping. The demand for LNG shipping is also expected to increase as existing liquefaction facilities streamline their processes and remove existing bottlenecks.
Catalyst Golar has Modern Fleet to Deliver LNG
Golar currently has three existing first-generation vessels, four existing modern vessels and seven new building LNG carriers available for employment over the next three years. With fundamental evidence of a structural deficit in the supply of LNG carriers in this same time period, Golar is advantageously positioned to lock in solid long-term returns.
Golar announced, on January 13, a new LNG contract with a Japanese trading company. The $45 million contract is for a three-year duration.
Golar's peer group in oil and gas storage and transportation includes companies such as Teekay Corp, Ship Finance Limited, Nordic Amer Tankers, Knightsbridge Tankers, Frontline and Tsakos Energy Navigation. Relative to its peers, Golar has the highest market capitalization at $3.35 billion with Teekay Corp a distant second at $1.79 billion.
U.S. Natural Gas Providers
Chesapeake Energy Corporation (NYSE:CHK)
Chesapeake Energy is the second-largest producer of natural gas in the U.S. The company is one of the most active natural gas drillers.
Chesapeake owns leading positions in the Barnett, Haynesville, Bossier, Marcellus and Pearsall natural gas shale plays and in the Granite Wash, Cleveland, Tonkawa, Mississippi Lime, Bone Spring, Avalon, Wolfcamp, Wolfberry, Eagle Ford, Niobrara, Three Forks/Bakken and Utica unconventional liquids plays.
Chesapeake Midstream Partners (CHKM)
Chesapeake Midstream Partners is an owner and operator of natural gas gathering systems and other midstream energy assets in the U.S. Chesapeake Midstream Partners has a current 4.9% distribution annual yield. The partnership receives drop-down assets from Chesapeake Energy.
EOG Resources, Inc. (NYSE:EOG)
EOG Resources is a leading natural gas and oil producer. The company has intentionally moved away from natural gas to the oil discovery plan of operations. The company has drilling interests in the U.S. In addition, the company has operations in Canada, the Republic of Trinidad and Tobago, the United Kingdom, and the People's Republic of China.
Southwestern Energy Company (NYSE:SWN)
Southwestern Energy focuses upon exploration for and production of unconventional oil and natural gas. Key locations include unconventional oil and natural gas in the Fayetteville Shale in Arkansas, the Marcellus Shale in Pennsylvania, the Brown Dense in Arkansas and Louisiana.
Golar is clearly a leader in its space. It has a versatile fleet of LNG carriers and floating LNG terminals, and a clear business strategy. Its shares have held up well and it offers a modest 3.0% dividend yield, largely in line with inflation. Looking ahead, market conditions appear favorable with strong anticipated demand for LNG carriers. Shares, however, could be in for a slight correction from their current 90x price-to-earnings multiple, which may create compelling buying opportunities for stock upside and a dividend income stream.
While a relatively low 2.87% annual dividend yield, the $1.20 annual dividend is still quite attractive based upon Golar's growth prospects. Share appreciation is available to Golar's successful business model as a leading LNG transporter.
Income investors must recognize a relatively young industry that offers a growing, vibrant dividend income. Golar LNG Limited offers a growing dividend with a strong wind at its back. The world uses natural gas for its power source. The United States has a significant amount of natural gas to export to the end user. The natural gas is transmitted in a liquefied natural gas form via Golar's vessels and infrastructure. Dividends are increasing at a significant pace.Disclosure:
I am long GLNG, CHKM.