Nordic American Tankers Raises Dividend, Now Yielding 13.4%

| About: Nordic American (NAT)

Summary

On January 13, NAT announced a 13.2% hike in its dividend, which brings the forward annual yield to 13.4%.

The fourth quarter rates per day per vessel were better than those of the third quarter, and so far in 2016, rates have continued higher.

As such, I expect good results for the fourth quarter, and I believe that the high dividend payment is sustainable.

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In my previous article about Nordic American Tankers Limited (NYSE:NAT) from November 23, I suggested that income-seeking investors should consider NAT's stock since the company is paying a generous dividend, and it said that the quarterly dividend payments will continue to be a central part of its strategy. Meanwhile, on January 13, NAT announced a 13.2% hike in its dividend, which brings the forward annual yield to 13.4%. NAT's board has declared a cash dividend of $0.43 per share to shareholders of record January 27, 2016. The dividend is expected to be paid on or about February 10, 2016. NAT's first dividend was paid in the autumn of 1997 and dividend payments have been made for 74 consecutive quarters.

Chairman & CEO Herbjørn Hansson commented:

2015 was a very good year for NAT, with results improving quarter on quarter. The strong tanker market for NAT is continuing into 2016. In 2015, we grew the fleet from internal financial sources, without issuing equity. NAT is very different from other tanker companies, a fact which is often neglected by observers and members of the analytical community.

According to the company, during the first three quarters of 2015, the level of the Suezmax spot tanker market was healthy. Tanker rates achieved on average for the third quarter were about $35,000 per day per vessel. Examining the chart below, we can figure out that the fourth quarter rates were even better at about $50,000 per day per vessel. So far in 2016, rates are still high at about an average of $45,000. NAT has one type of vessel, the Suezmax vessel, that can carry one million barrels of oil. The company owns 26 Suezmax crude oil tankers, including two new buildings under construction. A homogeneous fleet reduces its operating costs, which helps to keep its cash breakeven for NAT below $12,000 per day per vessel. NAT's operating cash breakeven is the lowest of the peer group.

Source: TEEKAY

Fourth Quarter

NAT is scheduled to report its fourth quarter 2015 financial results on Monday, February 8 before market open. According to four analysts' average estimate, NAT is expected to post a profit of $0.48 a share, a $0.47 rise from its actual earnings for the same quarter a year ago. The highest estimate is for a profit of $0.59 a share, while the lowest is for a profit of $0.37 a share. Revenue for the fourth quarter is expected to increase 100.6% year-over-year to $86.2 million, according to four analysts' average estimate. There was one EPS up revision during the last seven days, and one up revision and one down revision during the last 30 days. Since NAT has shown significant earnings per share surprise in its three last quarters, as shown in the table below, there is a good chance that the company will also beat estimates in the fourth quarter.

Data: Yahoo Finance

In the first three quarters of 2015, the company had significantly stronger cash flow than in the same period of 2014. The fourth quarter rates per day per vessel were better than those of the third quarter, and so far in 2016, rates have continued higher. As such, I expect good results for the fourth quarter, and I believe that the high dividend payment is sustainable. According to Nordic American Tankers, a low oil price is stimulating the world economy that is positive for the tanker market. Regarding transportation work (ton miles), the reduced imports to the U.S. are more than outweighed by the increased imports to the Far East. European crude imports have recently shown a rising trend.

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Source: Company's reports

Valuation

Since the beginning of 2015, NAT's stock is up 27.5%, while the S&P 500 Index has decreased 8.8%, and the NASDAQ Composite Index has lost 4.6%. However, since the beginning of 2012, NAT's stock has gained only 8.3%. In this period, the S&P 500 Index has increased 49.3%, and the Nasdaq Composite Index has risen 73.4%. Nevertheless, considering its compelling valuation, NAT's shares could go much higher.

NAT Daily Chart

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NAT Weekly Chart

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Charts: TradeStation Group, Inc.

NAT's valuation is very good. The trailing P/E is very low at 13.81, and the forward P/E is even lower at 10.67. Furthermore, the quick ratio is very high at 6.10, the enterprise value/EBITDA ratio is low at 8.29, and the PEG ratio (uses trailing EPS and current year estimates) is extremely low at 0.52.

Ranking

According to Portfolio123's "Momentum Value" ranking system, NAT's stock is ranked second among all 112 Russell 2000 energy stocks.

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The "Momentum Value" ranking system is quite complex, and it is taking into account many factors like Yield, price to book value, trailing P/E, price to sales, return on equity, sales growth, and relative strength, as shown in the Portfolio123 chart below.

Back-testing over 16 years has proved that this ranking system is very useful; the reader can find the back-testing results of this ranking system in this article.

Summary

On January 13, NAT announced a 13.2% hike in its dividend, which brings the forward annual yield to 13.4%. NAT's first dividend was paid in the autumn of 1997 and dividend payments have been made for 74 consecutive quarters. Furthermore, the company said that quarterly dividend payments will continue to be a central part of its strategy. In the first three quarters of 2015, the company had significantly stronger cash flow than in the same period of 2014. The fourth quarter rates per day per vessel were better than those of the third quarter, and so far in 2016, rates have continued higher. As such, I expect good results for the fourth quarter, and I believe that the high dividend payment is sustainable. NAT's valuation is very good, the trailing P/E is very low at 13.81, and the forward P/E is even lower at 10.67. Furthermore, the quick ratio is very high at 6.10, and the enterprise value/EBITDA ratio is low at 8.29. In addition, according to Portfolio123's "Momentum Value" ranking system, NAT's stock is ranked second among all 112 Russell 2000 energy stocks. In my view, income-oriented investors should consider NAT's stock, which is a good value at the current price.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in NAT over the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.