In my view, the stock of Nordic American Tankers Limited (NYSE:NAT) is an excellent candidate to be included in a high-yielding stock portfolio. The company delivered better than expected first quarter results, and it is paying a generous dividend yielding 12.2% a year.
On May 9, Nordic American Tankers reported its first quarter 2016 financial results which beat EPS expectations by $0.02 (6.5%). The tanker posted revenue of$76.7 million in the period, which missed Street forecasts of $78.1 million. The company showed earnings per share surprise in four of its last six quarters, as shown in the table below.
Data: Yahoo Finance
The first quarter of 2016 produced good results with operating cash flow of $55.9 million. For the full year 2015, operating cash flow was at $212 million, the strongest year in NAT's history. According to the company, the low oil price is an important factor for the tanker market. This has positively affected the tanker market through increased transportation requirements and lower fuel costs.
Source: company's reports
The Tanker Market
According to the company, the tanker market has been more or less at the same level the last few quarters. The average for the first quarter of 2016, the fourth quarter of 2015, and the first quarter of 2015 has been about $36,000, $39,800 and $37,000 per day per ship, respectively. The development of the world economy affects the tanker industry. Seaborne imports of crude oil into the U.S. have increased over the recent past. Imports to the Far East are steadily increasing. A low oil price is stimulating the world economy which is positive for the tanker market. The Suezmax fleet counts 458 vessels at the end of the first quarter of 2016, following an increase of three vessels so far this year. A number of orders have been placed with the shipbuilders in the past year. The current order book stands at 96 vessels from now to late 2017. This represents about 21% of the Suezmax fleet.
Source: company report
According to the company, for a variety of reasons, NAT has an operating model that has proven itself to be sustainable in both a weak and a strong tanker market. Accretive fleet growth, low net debt per vessel and quarterly dividend payments are central elements of the strategy. NAT has one type of vessel - the Suezmax vessel - that can carry one million barrels of oil. A homogenous fleet reduces its operating costs, which helps to keep our cash-breakeven below $12,000 per day per vessel.
I see continued healthy growth prospects for the company. In my view, the fact that NAT is increasing its fleet demonstrates management belief in its business. On May 2, 2016, NAT announced the acquisition of four existing Suezmax vessels which will be delivered to the company during May, June, and July. According to NAT, the fact that they are sister vessels is a positive factor of significance. Two were built in 2004, one in 2003 and one in 2000. Shipbuilding technology for crude oil tankers has not changed much over the last 20 years, so whether a ship has been around five years or fifteen years or longer does not matter anywhere near as much as the quality of the ship itself. NAT's vessels remain first-class, and these four additional tankers only enhance its fleet's reputation for safety and dependability. Including the four newly acquired vessels, NAT will have 28 vessels on the water and two new buildings. No equity offerings are planned in conjunction with this 30 vessel fleet. The construction of the two new buildings for delivery in the third quarter of 2016 and the first quarter of 2017 is on schedule. As I see it, the fact that the company does not plan to issue equity to fund the $106 million acquisition is very encouraging.
The company is paying a generous dividend, and it said that the quarterly dividend payments will continue to be a central part of its strategy. Meanwhile, on January 13, NAT announced a 13.2% hike in its dividend, which brings the annual yield to 12.18%. The dividend coverage ratio for the most recent trailing twelve months was at 70%, and the annual rate of dividend growth over the past three years was at 4.8%. Since NAT commenced operations in the fall of 1997, the company has paid a dividend 75 times, with total dividend payments over the period amounting to $47.40 per share, including the dividend to be paid on May 27, 2016. NAT's balance sheet was strengthened in the recent quarter as it retained about $17.5 million of operating cash flow during the quarter to finance future commitments, including its newbuildings. As such, I believe that the high dividend payment is sustainable, at least for the foreseeable future.
Since the beginning of the year, NAT's stock is down 9.1% while the S&P 500 Index has increased 0.2%, and the NASDAQ Composite Index has lost 5.8%. Since the beginning of 2012, NAT's stock has gained only 19.1%. In this period, the S&P 500 Index has increased 62.83%, and the Nasdaq Composite Index has risen 81%.
NAT Daily Chart
NAT Weekly Chart
Charts: TradeStation Group, Inc.
NAT's trailing P/E is very low at 10.84, and the quick ratio is very high at 5.00. Furthermore, the enterprise value/EBITDA ratio is very low at 7.28, the price to cash flow is also very low at 6.34, and the price to book value is at 1.43.
Moreover, most NAT's Growth Rates parameters have been much better than its industry median, its sector median and the S&P 500 median, as shown in the table below:
According to Portfolio123's"Momentum Value" ranking system, NAT's stock is ranked first among all 334 energy companies with a market cap greater than $100 million. The twenty top-ranked energy companies according to the ranking system are shown in the table below.
The "Momentum Value" ranking system is quite complex, and it is taking into account many factors like; Yield, price to book value, trailing P/E, price to sales, return on equity, sales growth, and relative strength, as shown in the Portfolio123's chart below.
Back-testing over sixteen years has proved that this ranking system is very useful; the reader can find the back-testing results of this ranking system in this article.
NAT delivered better than expected first quarter results, producing a strong operating cash flow of $55.9 million. According to the company, the low oil price has positively affected the tanker market through increased transportation requirements and lower fuel costs. I see continued healthy growth prospects for the company. In my view, the fact that NAT is increasing its fleet demonstrates management belief in its business. NAT's stock is an excellent candidate to be included in a high-yielding stock portfolio. The company is paying a generous dividend yielding 12.2% a year, and it said that the quarterly dividend payments will continue to be a central part of its strategy. All in all, In my opinion, NAT's stock is a good value at the current price.
Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in NAT over the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.