Top Picks 2016: Teekay Tankers
01/20/2016 7:00 am EST
Our Top Pick for aggressive investors in 2016 is a firm that owns a fleet of more than 60 crude oil and refined product tankers; most of its fleet is mid-sized Suezmax and Aframax vessels, suggests Elliott Gue, editor of Energy & Income Advisor.
Tanker operators such as Teekay Tankers (TNK) lease their vessels for a daily fee or day-rate to crude oil shippers either under long-term contracts at fixed rates (known as time charters) or shorter-term spot market rates.
Roughly 70% of Teekay Tanker’s fleet are contracted on the spot market where profitability is dependent on the short-term supply and demand for ships.
Tanker firms have benefited from falling oil prices over the past year. Low energy prices and the consequent growth in demand for oil meant there was strong demand for ships to carry all that crude.
Meanwhile, OPEC’s ongoing policy to target market share rather than a particular price for crude also benefits tanker operators.
That’s because around 90% of all oil leaving the Persian Gulf region is carried on tanker ships; when OPEC output grows so does demand for tankers to carry those exports.
Finally, after a prolonged bear market for tanker rates between 2008 and 2014, few operators have built new vessels so growth in newbuild tanker supply continues to undershoot growth in demand for waterborne oil transports.
Teekay Tankers recently announced a new policy to pay out between 30 and 50% of its quarterly adjusted net income as dividends.
This has resulted in a quadrupling of the quarterly payout from $0.03 to $0.12 per share, equivalent to a yield of around 8% at current prices. Teekay Tankers rates a buy under $8.50.