Are Shipping Stocks Sinking?

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 |  Includes: ATB, DHT, EGLE, FRO, GMRRQ, GOGL, NAT, ONAVQ, SFL, USS
by: Stockerblog

Since the rates charged for shipping vessels tanked by over 20 percent recently, the companies in the oil tanker business have taken a beating. A popping of a bubble has been predicted for this industry for a long time. Is this just a temporary sell-off creating a buying opportunity or is it the beginning of a long term decline?

This is one industry where the yields have been extremely high, with some topping out above 30% in the past year. However, yields have been dropping, and are probably not sustainable, even at these levels. The shipping industry may end up replacing the subprime industry as the new ‘bad boy’ sector.

The highest yielding stock is Frontline Ltd. (NYSE:FRO), which currently yields 11.8%. This Bermuda-based company owns, and operates oil tankers for transporting crude oil, coal and iron ore. The company has been paying dividends on a regular basis [March, June, August or September, and December), along with special dividends. But if you look at the trend of what they have been paying each year, you will see what I am talking about:

  • In 2004 it paid $22.14 per share in dividends
  • In 2005 it paid $15.96 per share in dividends.
  • In 2006 it paid $7.00 per share in dividends.
  • That trend does not look good. When you add that to the fact that the quarterly revenues and the quarterly earnings were down by 25%, it doesn’t look good. The stock has a forward P/E of 14.15, and the company was recently downgraded by UBS.

    The second highest yielding stock is Nordic American Tanker Shipping Ltd. (NYSE:NAT). It is another oil tanker company that is headquartered in Bermuda. It yields 11.6%, with a P/E of 13.85, and a high P/S of 7.95. Its earnings for the latest quarter were up 19.5% on a 27.6% revenue increase.

    Some of the other high yielding shipping stocks are:

    U.S. Shipping Partners (USS) 8.7%
    Double Hull Tankers (NYSE:DHT) 8.5%
    Omega Navigation (ONAV) 8.3%
    Arlington Tankers (ATB) 8.1%
    Knightsbridge Tankers Ltd. (VLCCF) 7.9%
    Eagle Bulk Shipping (NASDAQ:EGLE)7.4%
    Ship Finance International Ltd. (NYSE:SFL) 7.2%
    General Maritime (NYSE:GMR) 7.0%

    If you want to download an Excel database with all the shipping stocks and their yields and other financial data, go to Wall Street News Network.

    Disclosure: The author does not own any of the above.