Editor's Note: Article Updated on 8/10/08.
Nordic American Tanker (NYSE:NAT) is the easiest stock I follow to analyze. They lease all of their 12 Suezmax tankers on the spot market, keep the expenses low, and pay the majority of free cash flow as dividends. So the only questions are how were the spot rates and what is the dividend?
The second quarter answers were very good. Net income for the first half of 2008 is higher than the entire year of 2007. NAT’s vessels earned an average of $64,800 per day in the second quarter a nice improvement on the $46,600 earned in the 1st quarter. Most importantly, the declared dividend for the second quarter is $1.60 to be paid in September. The 1st quarter payout was $1.18. The press release noted that spot rates for the 3rd quarter are so far very close to the average of Q2.
Nordic American currently has no debt and does not use derivative financial instruments. Their break-even cost is $9,000 per day compared to over $20,000 for competitors like Frontline Ltd. (NYSE:FRO). They currently have two tankers on order to be delivered at the end of 2009 and early 2010.
Investors, be wary of any publication quoting the yield of NAT as a reason to invest. Because the company has 100% spot market exposure, the dividends fluctuate wildly and no future yield can be computed. Nordic American releases enough hints, so a reasonable assumption can be made for the next quarter, but that is it. The best opportunities to buy are when the dividend is low. Recent low payouts have been in the 50¢ range. That said, it appears the Q3 dividend will be similar to the one announced for Q2.
Note: I have a long position in NAT.