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This week I have been taking a closer look at what is going on with tanker stocks. This site’s 20 Stock Portfolio has two members in this class: Nordic American Tanker (NYSE:NAT) and Ship Finance Ltd. (NYSE:SFL). To me, the appeal of the tanker stocks is the opportunity for out-sized dividend payments. Since the dividends of these stocks can fluctuate tremendously, the market tends to price them at a very attractive yield.

NAT released their 3rd quarter earnings on Monday, reporting a small loss. This was not too unexpected because of previously reported very low charter rates and a letter from the CEO giving a heads up. They did declare a 40 cent dividend, I think to keep their record of 10% plus annual yields intact.

Ship Finance has had little news outside of a share buy back program, but the stock has been flat and down quite a bit this week. It popped up on Thursday over 6% with an strong upgrade from Citibank. I like SFL due to the steady dividend and having first call on the revenue of its leased ships. An 8%+ dividend that should grow makes a lot of sense to me.

From what I read there is slight over supply in the tanker business. High oil prices may get producing countries shipping more oil, a slowdown is the U.S. could reduce oil demand. Spot rates for oil tankers remain flat into the 4th quarter, so I am not looking for strong dividends in NAT for a couple of quarters. SFL has a more stable business model and I expect them to maybe have a few surprises over the next couple of quarters.

Unless some really good news comes across (isn’t that what we all are waiting for?) I expect some dips in the prices of NAT and SFL. I think in the longer term (1 to 3 years) prospects are excellent. Here is a chart of the companies and Frontline (NYSE:FRO), the largest tanker company.

Disclosure: I own shares in SFL.

Source: Tanker stocks: Where To From Here?