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Big Dividend Cut Coming Within 2 Weeks For Nordic American Tankers

Joeri van der Sman profile picture
Joeri van der Sman


  • Nordic American Tankers operates a fleet of 33 Suezmax crude tanker vessels, of which 30 are currently operating (3 on order).
  • NAT operates 95%+ of its fleet on the spot market and has a variable dividend policy based on the quarterly cash flows from the spot market.
  • NAT's long history of high dividends gave it a premium valuation of more than 2x the Net Asset Value of its ships, while peers trade around or even below NAV.
  • I believe Q2 and Q3 will both show large dividend cuts and predict NAT will lose its premium valuation status.

Last week, Nordic American Tankers (NYSE:NYSE:NAT) issued a press release reaffirming the company's high priority for dividends. The full text reads (emphasis mine):

"Nordic American Tankers Limited (NAT) – Dividend distribution for 2Q 2017. Dividend is a high priority for NAT.

Hamilton, Bermuda, July 7, 2017

The dividend for 2Q 2017 will be announced at the end of July; reflecting the distribution for the 80th consecutive quarter since the autumn of 1997. As reported in our message to the market of May 29, rates in 2Q 2017 were lower than in 1Q 2017, but well above our cash breakeven. In 1Q 2017, dividend was $0.20 per NAT share.

Typically, the NAT dividend will vary with the level of the tanker market. We send this message to reflect the strong NAT priority on dividend.

We are pleased with the position of NAT – financially, commercially and strategically."

I believe that this message is a warning for investors that a dividend cut for Q2 is impending. The text specifically highlights that Q2 2017 Suezmax spot rates were lower in Q1 2017 and that the level of dividend is variable with the level of the tanker market (rates).

NAT has many retail investors who like the company for the long track record of big dividends, which resulted in a very high premium valuation over peers. The Q1 2017 dividend was $0.20 per share, which translates into a current dividend yield of about 13%. The long track record of high dividends and large historical yield results in NAT being near the top of many stock screener tools. This article serves as a warning that NAT's long history of rich dividends is about to end.

Analysts seem to agree and take a very bearish stance on NAT. At a recent major shipping conference, 4 out

This article was written by

Joeri van der Sman profile picture
Investor / trader, MSc in finance, Business administration. Been following the shipping sector in great detail since 2016. Also have an interest in the oil industry.

Analyst’s Disclosure: I am/we are short NAT. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (281)

itsacasino profile picture
cost basis $2.28 I didn't even come close to the bottom last buy @$2 up 20% go natty T sold it $9 and the last of it @$7 … Just need that NMM to start to move keeping my fingers crossed that Herb doesn't crash it with one of his schemes
My question is how big a cut can it be when the last one was only $.01?
Joeri van der Sman profile picture
Not sure you realise, but this article was from july 2017.
When the 10 vessels are sold/scrapped and the reality of a lower revenue stream from the remainder hits, they'll have come to their senses. I'd say we're still in the 7th inning when it comes to NAT.

Quarter Section profile picture
Got that as I was having coffee. Good news. 5 to go. Hopefully by the end of next year all the 97, 98, 99 ships are gone.
sgtgibby profile picture
Sir, I find your articles very helpful. I appericate your insights.
anand profile picture
Which tanker stock would you buy right now?
Joeri van der Sman profile picture
I'm long TNK. But INSW, CPLP, TNP, NAT are all very cheap.
Quarter Section profile picture
Do they mean the 10 tankers built in the 1990's? They should be riding high in the water towards a ship breaking beach anyway.
Joeri van der Sman profile picture
We will see what the future brings.
Quarter Section profile picture
C.R. Weber's home page has that tanker chart. Seems to be more green "up" arrows of late.
itsacasino profile picture
Good timing Joeri looks like I was a little early, Let us know when this becomes a sell
Joeri van der Sman profile picture
I wrote a blog today explaining why i went long NAT yesterday: https://seekingalpha.c...
itsacasino profile picture
Natty T $2.55 small nibble 500 shares just set it and forget it, if it goes to $2 maybe pick up some more I bailed the last of it @ $7 small loss but have done pretty good over the last 10 years or so just hope Herbie doesn't go BK
Joeri van der Sman profile picture
I think NAT is priced pretty fairly right now, especially with scrap steel prices well over 400$ / ltd.

I own many shipping stocks, some interesting ones are TOO, TK, SBLK, HLNG.OL, NM preferreds... but many more.
anand profile picture
SBLK seems to have a more premium valuation.

Is HLNG.OL the largest shipping company?

My favorites are NAT, TOO, TK and FRO in that order. I think that at this time NAT is the best value. However, I am waiting for one more down leg to invest.

If you had to add money to one or two companies to invest; which do you think is the best value?
Joeri van der Sman profile picture
FRO is very expensive. I would switch FRO into GNRT.

I don't think HLNG is that large? It is quoted in norwegian kroners, so maybe that confuses you on market cap. Largest shippers would by the mearsk/Cosco types.

If I would add today I would probably add to TOO, TK or HLNG.ol.
sts66 profile picture
"My favorites are NAT, TOO, TK and FRO in that order"

Hope you mean "my favorite stocks to short" - because you would have lost your butt if you were long in all of them but TK.
anand profile picture
I think NAT will avoid bankruptcy in this down cycle. What other shipping companies do you think will survive this downturn? Which would you buy now?

At what point should NAT be purchased? Suspect NAT is likely to drop further in the coming weeks or months; before rocketing higher in the next up cycle.
Tudor Invest Holdings profile picture

I just saw the report today that NAT has done a 10 year BBHP (BareBoat Hire Purchase) deal with Ocean Yield ASA in Oslo, for the 3 Suezmax newbuildings coming out middle of next year.

From my experience (I did 3 containerships for 10 years BBHP) is that ship owners only do this when they are getting pretty desperate. Traditional finance is out - its not available.

So what do you do? You move assets off the balance sheet. No debt is created, but there are major financial liabilities in 10 year charter payments to be made, and a buyback at a fixed price, no matter what the market is. Neither Ocean Yield, nor NAT has disclosed the commercial terms, but we know that NAT pays out 9% dividend. I do not think Ocean Yield would have done this deal, unless it is going to improve dividend for Ocean Yield. After all, why would they. There is zero upside, since NAT are contractually obliged to buy back the ships.

By doing this desperate move, they can brag about 80 consecutive quarters of dividend.

Great call, by the way........

Joeri van der Sman profile picture

Agreed, very telling sign. I assume you mean to say "ocean yeild pays out 9%" and not NAT?

There where reports last week that NAT is putting it's 20 year olds through drydock, while some peers have been scrapping even younger vessels, a huge gamble by NAT.
Tudor Invest Holdings profile picture
Yes that's correct - Ocean Yield pays 9%
sts66 profile picture
So what does NAT get out of this except not being liable for the debt payments? Do they actually make any money on the deal or is it just break even?
Joeri van der Sman profile picture

Hmm, 3 cents. I was expecting 0 and then maybe some NAO shares. Wonder how they did the 3 cents with the covenant restrictions, but maybe the banks allowed a small dividend to keep the streak alive.

Weird that NAT is down so much today on this news as it was very predictable...
hpestes profile picture
May reach the $2.50 price that will interest you.
Quarter Section profile picture
I wish NAT would hurry up already and reach $2. I might buy.
Joeri van der Sman profile picture
These large firms are well covered by many analysts. I doubt there are similar discounts available compared to smaller firms often discussed here.

Other than that, i never looked into the likes of MOL et all.
Joeri, J, and others,

Is this "story" buried at this point, or is there still some relevance? They issued shares in NAO with a smaller cash dividend last time around. Will they be able to do the same/similar this time also, without acting constrained by the bankers revised covenants on dividend in respect of EBITDA coverage?

IVs of options are still high, so it appears that there is still some "tension"...
Joeri van der Sman profile picture
Rates didn't go as low as i anticipated due to the huge brent-WTI spread and a spike in US exports.

This story is still valid though as Q3 will be very bad. They gave away roughly 1/3th of their NAO share position last time. NAO share price has increased since. So they might be able to do another $0.1 dividend in NAO shares if the banks allow it.

There have been quite some tankers scrapped at 17.5 year mark the last weeks. NAT has many older than this, so they are clearly terribly positioned and still crazy expensive.
itsacasino profile picture
Those NAO shares that Herb used to pay the dividend are looking better all the time
Quarter Section profile picture
I'm up like $30, so I'm trying to decide on Sikorsky or Bell for a commuter helicopter.
itsacasino profile picture
been in and out since 2011 up on NAT way down on NAO Mintz and Joeri are good people, too bad things don't always go like the TK, TOO did
hpestes profile picture
Thanks for this article, Joeri. Saved me some money. Your forecast of a dividend cut, J Mintzmyer's concurrence, and your statement you wouldn't go long above $2.50 made me ask what am I doing? In Jan/2017 @ $8.785, out Jul/2017 @ $6.245. Even with divs plus option income still an annual loss rate of 42%. Which I would likely be on my way to achieving without this article.
Joeri van der Sman profile picture
NAT just broke 5.

Suezmax rates are actually holding up better than I expected. But they have been like 6-8k/day for weeks now, so a cash flow losing quarter is almost a given by now.
warbucks profile picture
Looks like an offering is coming. Maybe Morgan Stanley is shopping it around and causing more selling pressure. Offering likely below $4 at this point.
Joeri van der Sman profile picture

The share price crash will make Herb's bond plans a lot harder, so he might have to go for an offering instead.
warbucks profile picture
Maybe a combination of both. Hard to imagine anyone wants to own unsecured bonds in NAT when they have already violated covenants on their bank debt and have reckless dividend policies on top of that.
Does anyone think they will make money for 2017-2018? Should I sell? Or wait.
Quarter Section profile picture
Depends on scrapping and new builds hitting the water, and a host of other factors. Follow Mr. Van Der Sman, Mr. Mintzmyer, and others in this space and make your own decisions.

Others here have commented on NAV of NAT and various price targets for NAT stock and the picture isn't pretty. Lots of headwinds with regards to the age of the fleet, ballast water and emissions regs.
DavidLeBlanc profile picture
The suezmax supply outlook is not great going into the seasonally weak third quarter. Most are predicting either a large dilutive stock offering to allow for a dividend and fleet renewal, or no (or very low) dividend, or NOA shares in lieu of a dividend. The company has made noises about a bond offering but I can't understand how that would be possible at any reasonable interest rate, and if they pull it off, would only add further debt to service in the face of an aging fleet and declining revenue.

If you must be in crude tankers, there are much better options, IMO. There are others here that know much more than I, J Mintz, Joeri for example.

Best of luck in any case
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