Ship Finance: High Yield in Tankers
11/19/2015 8:00 am EST
The crude tanker industry is in the midst of its own stealth bull market that looks to have legs well into late 2016, observes income expert Bryan Perry, editor of Cash Machine.
China in particular is ramping up its strategic petroleum reserves. China may add as many as 100,000 barrels a day of oil to strategic stockpiles this year and increase it to 200,000 barrels a day in 2016.
So how is all of this oil getting to China for storage? Huge oil tankers, that’s how. And of the tanker stocks that pay out high-yielding dividends, Ship Finance International (SFL) is my favorite among the lot.
The Bermuda-based firm owns and operates 19 oil tankers, 14 dry bulk carriers, 17 container vessels drilling rigs, and offshore supply vessels, and two chemical tankers.
The company is regarded as having arguably the best management team in the business and its portfolio of ships demonstrates a commitment to diverse lines of global shipping that keep its top and bottom lines less cyclical.
The company posted second-quarter earnings of $0.57 per share, well ahead of the $0.40 per share consensus estimate from analysts who cover the company.
The consensus forecast for 2015 is for the company to earn $2.04 per share. That covers the dividend payout—currently $1.76 per share—by a ratio of 1.15:1.
Assuming the case for improved crude imports, increased refining operations, and the continuation of storage hitting up against capacity persists, SFL likely will report further upside surprises.
That will not only fortify the current 10.21% dividend yield but also provide for some capital appreciation.
Investing in shipping stocks has always been a risky proposition, as the day rates for ocean-going charters tend to be highly volatile.
Ship Finance places more emphasis on longer-term charter rates as opposed to what are called the “spot market” prices. As such, revenue and profit growth are more stable quarter to quarter.
Best of all though, the current yield is 10.4%, a very attractive payout for income investors that are in agreement with this investment thesis.
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