By Tracey Ryniec
It's been a rough couple of years for most of the global vessel companies. But Ship Finance International Limited (SFL) is still expanding its fleet and rewarding shareholders with a huge yield. This Zacks #1 Rank (Strong Buy) is also a value stock, with a forward P/E of 9.8.
Ship Finance International owns 62 vessels and rigs and is under contract on seven additional newbuildings. It has long-term fixed charters, with an average length of about 11 years.
Ship Finance Beat In Q1
On May 24, Ship Finance reported preliminary first quarter results and surprised on the Zacks Consensus by 28.6%. Earnings were 45 cents compared to the consensus of 35 cents.
During the quarter the company took delivery of four dry bulk newbuildings. It also terminated 5 bareboat charters with Horizon Lines and received $40 million in second-lien bonds plus equity warrants as compensation.
Revenue, however, slipped to $186 million from $193 million in the fourth quarter of 2011. But Ship Finance said the tanker market outperformed most analysts' expectations in the quarter and this contributed to revenue through the new cash sweep arrangement with Frontline, which brought in $13.6 million.
The big story with Ship Finance is the juicy dividend. The Board of Directors raised the quarterly cash dividend to 39 cents from 30 cents the previous quarter. Shares are now yielding a whopping 9.9%.
The company has a strong track record of paying something every quarter as it has paid a dividend for 33 consecutive quarters which impressively includes the Great Recession, when most shipping companies got crushed.
The Zacks Consensus Estimate for 2012 Rises
The 2012 Zacks Consensus Estimate has jumped 22% to $1.59 from $1.23 just 60 days ago. However, analysts don't expect earnings growth as the company made $1.67 in 2011.
Valuation Is Attractive
Unlike most other stocks, shares of Ship Finance have actually rallied throughout 2012 and were recently at a new 2012 high.
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But it still has value characteristics.
Along with a P/E under 15, which is my cut-off for value, it also has a price-to-book ratio of 1.4. A P/B ratio under 3.0 usually means value.
Additionally, Ship Finance also has a 1-year return on equity (ROE) of 15.9% which is above that of the S&P 500 which averages 13.1%.
If you're a value investor looking for big income, Ship Finance is a company to add to your watch list.