It is not every day that a financial writer profiles a company and then, two days later, has the opportunity to speak with the company's CEO. That, however, is exactly what happened in regard to my recent Fool article, "Is Nordic American Your Friend?"
On Thursday morning, I spoke by phone with Mr. Herbjorn Hansson, CEO and Chairman of Nordic American Tanker (NYSE: NAT), regarding key insights on his company's performance. Mr. Hansson did not dispute my prior article's accounting of Nordic's stock volatility, numerous share offerings, or annual changes in financial performance. He did, however, contend that certain references to dilution of the share base could have been more accurately described as an increase in share count.
Foolish readers, before I restate figures in the manner that Mr. Hansson prefers, let's be clear, when a company issues new shares, the result, by any hard and fast measure, is shareholder dilution, which is to say that each new share represents a reduction in proportional ownership of the company. However, if the proceeds from the newly issued shares are successfully invested by the company in such a manner that the financial return per share increases, investors are compensated for their decreased ownership stake by higher profits. Owning less, in essence, buys more.
Such an outcome, of course, may never materialize. Or it could just take an awfully long time, as is likely to be the case with the government-backstop-type dilution suffered by shareholders of Wells Fargo (NYSE: WFC), Morgan Stanley (NYSE: MS), Citigroup (NYSE: C), and Bank of America (NYSE: BAC).
OK, with that small matter cleared up, I gladly update the language in the chart below.
| |
2004
|
2005
|
2006
|
2007
|
2008*
|
|
Share Increase
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30%
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27.4%
|
54.1%
|
11.4%
|
14.7%
|
|
EPS change
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40.1%
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(25.2%)
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3.6%
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(50.3%)
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100%
|
|
Dividend change
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58.7%
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(13%)
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39.1%
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(34.9%)
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28.3%
|
* EPS and dividend numbers are year over year. 2008 EPS results include the first three quarters only.
Looking at 2004 and 2008, the increase in share count was well outpaced by EPS and dividend growth: the share offerings were well worth it. The in-between years of 2005-2007, on the other hand, did not work out so well for shareholders. In this case, dilution, in every sense of the word, is very much the correct term.
The view from Norway
Reaching well beyond the semantic, Mr. Hansson offered a number of alternative perspectives on what he referred to as his company's operational and managerial excellence. Allow me to preface the following sampling of Mr. Hansson's observations with the statement that he made at the start of our conversation: "We are a very special company with a very special operating model."
- If an investor wants exposure to the Suezmax spot market, Nordic American is the stock to own, underscored by the fact that NAT has outperformed 60 competitors on the basis of 52-week change in share price.
- Earnings per share, in the case of a large dividend payer such as Nordic American, should not be the focus of an investment thesis; rather, investors should look to the dividend history. Accordingly, return on equity, since it is based on income, is also of little value.
- Given that Nordic American pays out all earnings as dividends, a growth model that relies on retained earnings is not right. Rather, Nordic American will continue to go to the capital markets.
- Ship acquisitions have been accretive to earnings.
- Over time, the spot market trend is upward.
- From Jan. 1, 2004, when the stock closed at $15.20, to the present, the annualized return, accounting for reinvested dividends, is 37%.
Furthermore, Mr. Hansson opined that it is not so easy for a company to issue shares in the current macro environment, yet Nordic was able to do so, as announced after Wednesday's market close.
And the Foolish view
I do not begrudge Mr. Hansson's company any of its achievements. For certain, over the past year, I'd rather have been invested in Nordic American than Navios Maritime (NYSE: NM) or Excel Maritime (NYSE: EXM), both of which have seen their shares whither. But I do need to make a couple of points.
The fact that ship acquisitions have been accretive to earnings is not the same as share offerings being accretive to earnings. As stated in company releases, the proceeds from share offerings have been used not just to purchase additional tankers but also to pay down debt and to fund general operations.
Regarding Mr. Hansson's eagerness to focus on dividends, it is true that in down years, the drop in dividends has been less severe than the hit to earnings, which does augur for the company's historical ability to finance the dividend beyond cash provided by operations. On the other hand, the 2008 dividend of $4.89 per share was virtually unchanged from the 2004 dividend of $4.84. Moreover, of the past five years, the 2006 dividend is the highest by a margin of about a buck. Hey, this is the spot market and anything can happen, but so far, I think the company's growth initiatives have grown the dividend, well, inconsistently at best.
At the close of our phone conversation, Mr. Hansson wrapped things up for me with the energy of a pep squad: "Your article asked if Nordic American is your friend -- I say 'YES!'"
Fools, what I want to know is, are you accepting Mr. Hansson's friend request? The CAPS boards are waiting.
“Make Big Money With Options” Motley Fool CFO Ollen Douglass recently made over $100,000 buying options on 7 well known stocks. Now we’re committed to turning his small fortune into a massive one! And we want you to join us! Enter your email address to hear more:
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