Why Income Investors Should Invest in John Fredriksen Companies

A key investing principle here at the Fool is to find great companies led by innovative and dedicated founders -- then invest alongside them for the long term. Heavy inside ownership is seen as a major benefit and gives us confidence that the interests of investors and management are aligned. The technology sector is famous for innovative, founder-led companies, with the most prevalent examples being Amazon,Tesla, Google, and Netflix. For yield-hungry income investors in the energy space the options seem slimmer, with only Kinder Morgan's empire of companies and MLPs meeting this criteria. However, there is a lesser-known giant of income investing, one whose innovative spirit and entrepreneurial genius rivals any of the above company's founders. This article is designed to introduce investors to one of the world's most successful capitalists and begin a series of articles highlighting his high-yielding, high-quality empire of income stocks, investments that could make long-term investors very wealthy.

John Fredriksen: the modern day Poseidon 
To investors who know of him, John Fredriksen seems like the god of the sea. From his humble roots as the son of a Norwegian welder, Fredriksen has built one of the largest seaborne empires in the world and is today, at a net worth of $14 billion, the 78th richest person in the world.

A truly self-made billionaire, John started off as a shipbroker in Norway, but in his 20's struck out on his own. In the 1960's he began trading oil in Beirut, Lebanon and bought his first oil tankers in the 1970's. During the Iran/Iraq war of the 1980's he was one of the few tanker owners brave enough to continue operating in the region, despite the danger to his ships. Due to the extraordinary profits Fredriksen was able to garner during that decade, in the 1990's he was able to found Frontline LTD, which went on to become the largest oil tanker company in the world. From that high point, he diversified his empire by founding Seadrill, Ship Finance International, Golden Ocean, Golar LNG, Deep Sea Supply, and Marine Harvest

In 2006, Fredriksen gave up Norwegian citizenship in order to become a citizen of Cyprus. This was because Cyprus imposes no taxes on dividends generated outside the country. 

This fact, in addition to his heavy ownership stakes in the companies he's founded (he owns 21% of Seadrill, which pays him $400 million/year in dividends), is why Fredriksen companies are famous for having some of the highest yields on the market. 

  • Seadrill Limited: 11.2%
  • North Atlantic Drilling: 10.6%
  • Ship Finance International: 9.1%
  • Seadrill Partners: 6.7%
  • Golar LNG Partners: 6.7%
  • Marine Harvest: 6.1%
  • Frontline 2012: 5.8% (based on recently announced merger with Knightsbridge Tankers, who recently raised its dividend and is guiding for long-term dividend growth)
  • Golar LNG: 4%

Over a series of articles I will explore all of these companies and partnerships in order to help income investors decide if they want to participate in the fast-growing Fredriksen empire.

Golar LNG (NASDAQ: GLNG  ) and Golar LNG Partners (NASDAQ: GMLP  ) are among the best ways to play the coming liquefied natural gas (LNG) shipping boom. This boom will be driven by two of the biggest energy megatrends today: LNG exports and growing gas production, a result of the shale fracking boom. 

Golar LNG serves as a large stakeholder (39.4% owner) and general partner to Golar LNG Partners, and as such receives both distributions from the MLP as well as incentive distribution rights, which have grown by 300% since 2012. These income streams have allowed the company to grow its dividend by 80% (18.2% CAGR) in the last three and a half years. 

Both the security and growth of the dividend/distribution will come in the form of aggressive growth in both regular LNG tankers (10 scheduled for delivery by November 2015) and floating storage and regasification ships (three to be delivered by November 2015). 

The MLP, by its nature has a slightly higher yield and slower distribution growth, though at 11.8% CAGR growth since its 2011 IPO, income investors have done very well by both the parent company and the MLP. The combination of excellent industry fundamentals and company-specific execution is likely to continue resulting in market-beating total returns over the long term.

Foolish takeaway
The John Fredriksen empire of companies represents an opportunity for long-term income investors to invest alongside one of the brightest minds in the world today. This modern-day king of the sea has managed to tap into some of the largest and most profitable megatrends in the global economy -- offshore oil drilling, LNG shipping, growing global food demand -- as well as generalized shipping and energy transportation. In the process he has created one of the best wealth and income generating machines in the world, one income investors would do well to consider for their portfolios. 

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

 


Read/Post Comments (6) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 20, 2014, at 7:08 PM, tMonky wrote:

    What am I missing about Frontline? While I've owned it it has gone from $50/share to $2.5/share and stopped paying a dividend back in 2011. Not all of Fedriksen's companies have been winners.

  • Report this Comment On May 20, 2014, at 9:04 PM, AdamGalas wrote:

    Correct, Frontline went through a hard financial restructuring. The new frontline 2012 is a spin of consisting of only the newest and most advanced ships and new builds. In a future article in this series I will cover Frontline in depth. The recent spin off and announced merger with Knightsbridge means that a lot of moving pieces on this company.

  • Report this Comment On May 21, 2014, at 12:45 PM, stoneman232 wrote:

    Hi, a nice introductory article. In future articles, you may wish not to use the word MERGER when talking about the SALE by FRNT Frontline 2012 of vessels to VLCCF in exchange for a lot of VLCCF stock. This is NOT NOT NOT a merger. You are right that FRNT will receive dividends on its VLCCF shares. Note, when you consolidate financial reporting, as would occur here, this does not not not make it a merger.

    Also, although Mr. Fredriksen has large interests in Marine Harvest and Deep Sea Supply, he did not "found" or Start-up either company.

    Another history that would be worthwhile for you to explain is that of Avance Gas Holdings. AVACF. As you know, FRNT has a big interest in Avance. Avance's first regular divvy should be a great take off point for you, and larger divvies loom ahead as more ships are launched. Unless, of course, I am wrong.

    Cheers, and good luck. Ed.

  • Report this Comment On May 21, 2014, at 12:54 PM, MarioCarbone wrote:

    Probablly you forgot to mention Archer, which is also one kind of investment of JF.

    It can happen that one day some shareholder of SDRL will sue for pumping money there, that then go in vain.

    Otherwise from those companies I know SDRL and GLNG. Both are in big debts. In SDRL everything depends how the market of drill prices will behave.

  • Report this Comment On May 21, 2014, at 5:17 PM, AdamGalas wrote:

    Thank you all for your valuable insights. Part of what makes The Motley Fool so valuable is this kind of sharing of information. I will certainly take both Archer and Avance into consideration in future articles.

  • Report this Comment On May 21, 2014, at 6:13 PM, AdamGalas wrote:

    http://www.shippingherald.com/Admin/ArticleDetailsDryCargo/t...

    My apologies for calling the Knightsbridge/Front Line deal a merger. Based on the above article the two are merging their fleets in exchange for shares that will pay dividends. It sounds a lot like a merger, but as MarioCarbone said, is in fact a sale.

    Chairman of Frontline, the above mentioned John Fredriksen stated: "We are very pleased to be able to enter into this transaction with Knightsbridge for the remaining Capesize fleet of 25 newbuidings, which is in line with our strategic plan of creating pure plays in different shipping segments through consolidation, divestments and spin offs."

    This deal is in fact a form of divestment, though not the typical fashion. Fredriksen is known for creative financing, thus the reason SDRL has spun off two MLPs to help finance new builds, a matter for my next article.

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