Nordic American Tanker nice dividend boost

Monday May 5, 2008

Nordic American Tanker (NAT: 39.46 +0.56 +1.44%) is out with their first quarter results and the boosted the dividend 136% from Q3 and Q4 of 2007. Nordic American runs a fleet of 12 Suezmax tankers all in the spot market. The first quarter results are good news and the company indicated the 2nd quarter of 2008 is off to a great start.

The revenues for NAT are entirely derived from spot market rentals of their oil tankers. The company has a policy to pay out all of a quarter’s free cash flow as dividends. Dividends fluctuate tremendously as do spot market rates for their ships. Nordic American believes the spot market will give the best returns on their tankers over time. Investors have to live with the fluctuating dividends, although the stock has historically yielded over 10%. Here are couple of notes from the press release:

The declared dividend for the first quarter will be $1.18. This is compared to 50¢ for the previous two quarters.
The company has now paid a dividend for 43 consecutive quarters.
Average charter rate for the first quarter was $46,600 /day/tanker. This compares to $27,000 in Q4, 2007.
Average charter rate for the 2nd quarter, 2008 is exceeding the first quarter.
Of the 360 worldwide Suezmax tankers, 46 are single hulled and will be out of service by 2010. New building has slowed, reducing the chances of a tanker over supply in the next few years.
NAT has 2 new tankers on order to be delivered in 2009 and 2010.

I like NAT in the tanker space for it’s strong dividend policy, which is related to their low cost structure. NAT’s daily expenses per tanker are less than half those of larger fleets like Frontline (FRO: 62.59 +1.03 +1.67%). This allows the company to keep paying a dividend when spot rates are low, and really boost the payout when charter rates are good. NAT is a component of my Income Portfolio.

Note: I have a long position in NAT