Nordic American Tanker's Nice Dividend Boost

Nordic American Tanker (NAT) is out with its first quarter results and boosted the dividend 136% from Q3 and Q4 of 2007. Nordic American runs a fleet of 12 Suezmax tankers all in the spot market. The first quarter results are good news and the company indicated the 2nd quarter of 2008 is off to a great start.

The revenues for NAT are entirely derived from spot market rentals of their oil tankers. The company has a policy to pay out all of a quarter’s free cash flow as dividends. Dividends fluctuate tremendously, as do spot market rates for their ships. Nordic American believes the spot market will give the best returns on their tankers over time. Investors have to live with the fluctuating dividends, although the stock has historically yielded over 10%. Here are couple of notes from the press release:

• The declared dividend for the first quarter will be $1.18. This is compared to 50¢ for the previous two quarters.
• The company has now paid a dividend for 43 consecutive quarters.
• Average charter rate for the first quarter was $46,600 /day/tanker. This compares to $27,000 in Q4, 2007.
• Average charter rate for the 2nd quarter, 2008 is exceeding the first quarter.
• Of the 360 worldwide Suezmax tankers, 46 are single hulled and will be out of service by 2010. New building has slowed, reducing the chances of a tanker over supply in the next few years.
• NAT has 2 new tankers on order to be delivered in 2009 and 2010.

I like NAT in the tanker space for its strong dividend policy, which is related to its low cost structure. NAT’s daily expenses per tanker are less than half of those of larger fleets like Frontline (FRO). This allows the company to keep paying a dividend when spot rates are low, and really boost the payout when charter rates are good.

Note: I have a long position in NAT.

Comments

[notsosmart:]

i have no connection to nat or fro but owned them a while & the yields have been great. specially fro.

2008 May 06 08:56 AM

[Malkiel:]

I fled to NAT as a dividend safety play in January and am starting to feel, ahem, pretty competent right now. What I don't get is, what is it with all those parties out there who dumped this stock a week before the dividend date last quarter? Don't you guys get it about how dividends work? If you held it for the previous 2 months then at least pass "go" and collect your payoff...

2008 May 06 10:59 AM

[Old Trader:]

Get this Hudlow JERK off the site!!!!!

jan

2008 May 06 11:36 PM

[jfw:]

Bought nat on the high side last year and only now back to cost, however dividends have kept me OK, look for more upside potential

2008 May 07 11:49 AM

[jfw:]

bought nat on the high end last year and only now back to cost, however dividends has kept me in the game, look good for near long term

2008 May 07 11:51 AM

[w5737:]

Nat should pop 0n 5-9-08. Cramer went bananas over it on 5-8-08 and $1.18 dividend per sh. is nothing to sneeze at. I'll watch it for a few days and make sure I can pick up the may div.

2008 May 08 11:25 PM

[golds:]

NAT is a good company but here is a better company with upside surprise on Wednesday.

TNK presentation

Q1 EPS = $0.76
YRLY EPS = $3.04

The company just bought two new Suezmax tankers on credit and you can see that the profits will go up based upon this purchase and the currently highly spot rates. Download the guidance chart from TNK directly.

link to divided payout schedule (guidance chart) based upon spot rates
www.teekaytankers.com/...
download 48kb 3 page file and look at dividend spreadsheet.

Here is the data you need to do the calculations - this data was acquired from a professional source confirmed to be accurate with TNK.

04/04/08
VLCC $95,263
SUEZMAX $60,471
AfraMAX $41,447

I watch and record the weekly spot averages for all tanker types.
The above list is the Average tanker daily spot rate as of the end of Q1. Q2 is higher already.


Here is the latest average including every week from Jan 1 to today.
05/02/08
VLCC $96,718
SUEZMAN $72,152
AFRAMAX $46,545

For those of you too lazy to download this critical guidance here is the brief summary.

Current Q1 spot rates

20,000 = dividend $1.64
25,000 = dividend $1.99
30,000 = dividend $2.34
35,000 = dividend $2.69
40,000 = dividend $3.04 ***** here we are

Download the full chart to see how the two new suezmax tankers effect income (its dramatic).

2008 May 12 12:25 PM