2021 was a fantastic year for dry bulk carriers and containerships. One company that we expect will adequately reward investors next year is SFL Corporation (SFL) which offers direct exposure to the marine industry, suggests Nikolaos Sismanis, contributing editor to The Sure Analysis Research Database.
The company's primary businesses include transporting crude oil and oil products, dry bulk and containerized cargos, as well as offshore drilling activities. It owns 16 oil tankers, 22 dry bulk carriers, 35 container vessels, six car carriers, one jack-up drilling rig, two ultra-deepwater drilling units, two chemical tankers, and two oil product tankers.
We like SFL because while the company has a sizable exposure to time charters that provide more stable cash flows, it also has plenty of exposure in the spot market, which should boost its performance during favorable market conditions.
SFL Corp.'s performance has been somewhat volatile in the past, while the company was forced to cut its dividend during the pandemic. That said, the company seems to be now very well-positioned to deliver to shareholders.
The company has successfully committed close to $850 million towards accretive investments so far this year, whose benefits already appear in the bottom line. Moving towards 2022, dry bulk rates remain healthy, which along with the SFL's acquisitions and resilient contracted backlog, should also help grow profitability.
Its recent dividend hike by 20% to a quarterly rate of $0.18 should reassure investors that this is indeed the case. SFL yields a sizable 8.9% at the stock's current levels, while the payout ratio should stand at around 75% based on our earnings projections for the year.
We believe that the company is set to grow its earnings at a modest rate in the medium term and potentially further grow the dividend in the coming years. Powered by its hefty dividends and the prospects for humble but respectable growth ahead, we believe that SFL is quite likely to outperform in 2022.
Due to the majority of investors' total returns set to be sourced through the dividend, the overall predictability of SFL's investment case is rather strong as well.
While we think the dividend’s coverage is quite adequate, however, investors should mind SFL long-term debt/equity ratio, which currently stands at 221%. That said, SFL has been deleveraging amid frequent debt repayments over the past few years, which should strengthen the balance sheet as we advance and reduce risk in that regard.