I included SFL Corporation (SFL), known then as Ship Finance International, in the Dividend Hunter portfolio from the first issue in June 2014. Now, it is time to bring SFL back as an attractive dividend recommendation, explains Tim Plaehn, editor of The Dividend Hunter.
Ship Finance International, Ltd. was established in 2003 and listed on the New York Stock Exchange in 2004. The company changed its name to SFL Corporation, Ltd in 2019. At the time of the IPO, the company’s fleet consisted solely of crude oil tankers. Over the last two decades, the company’s fleet has expanded into multiple types of vessels, with a current fleet of 73.
The structure also changed, as noted by these comments from CEO Ole B Hjertaker in the second quarter earnings release:
“Over the last decade, SFL has transformed from a financial leasing provider to a maritime infrastructure company with the majority of assets on long-term time charters to end users.
A key part of our value proposition is to own, operate and continuously upgrade the fleet to the highest standards, including fuel efficiency measures to reduce the carbon footprint for us and our customers. This translates into multiple repeat transactions with blue chip customers. It also increases the residual value of vessels in our fleet, as illustrated by the new charters for our two car carriers, where EBITDA contribution will increase fivefold.”
SFL contracts ships to end users on long-term charters. This financial structure provides the company with a stable, long-term, visible revenue stream. As of the end of the second quarter, the charter backlog stood at $3.6 billion, with a weighted average remaining charter term of six years.
Four of the seven car carriers are under construction and will generate future revenue growth. During the quarter, SFL noted that two carrier charters with Volkswagen (VWAGY) had been extended for three years, increasing the EBITDA from the two ships from $9 million to $47 million per year.
SFL’s harsh environment semi-submersible rig Hercules is currently drilling for Exxon Mobil (XOM) in Canada. In the fourth quarter, the rig will transit to Namibia for a contract with Galp Energia. On August 14, SFL announced a follow-on contract for $100 million starting in the 2024 second quarter.
SFL is a high-yield stock that goes into the Stable Dividends category. In 2022, the company paid quarterly dividends of $0.22, $0.23, $0.23, and $0.24 sequentially. Payouts of $0.24 have been declared for the first two quarters of 2023.
Recommended Action: Buy SFL.
