Tank you very much. That was investors' response to Nordic American Tanker Shipping's
The operator of crude-oil tankers landed buoyant spot rates for its double-hulled Suezmax fleet in the quarter. While industry spot rates -- the going market rate to employ a tanker -- have fallen below their elevated post-Katrina levels, they firmed up by more than 5% sequentially, to just south of $42,000 a day, according to the Imarex Tanker Index. Dividing Nordic American's revenue by the number of vessel revenue days also shows us that Nordic earned above-average rates for its relatively young, advanced fleet.
Nordic American also expanded its fleet, as it tends to do. Since it took delivery of its first three tankers a decade ago, the company has quadrupled the number of tankers it owns. With the addition of three additional vessels, operating cash flow was up 22.4% over last year on 45.4% higher revenue days.
The company is what our Income Investor guru James Early refers to as a high-risk dividend stock. The firm pays out all of its residual earnings as dividends -- hence the eye-popping payout ratio. When earnings drop, Nordic American doesn't run itself into the ground by paying out a fixed amount; it merely pays a proportionally smaller dividend. With a cash breakeven level of $9,500 per ship, per day, I don't see any major problems there.
When asked to predict what stocks would do, it is reported that J.P. Morgan replied: "They will fluctuate." Well, that is my prognostication for Nordic American's results, and consequently its dividend, going forward. In the relatively near term, I see the tanker companies to be at risk, to the extent that a U.S.-led global slowdown is a real possibility. Yes, I'm well aware that there's a resource-hungry country called China out there, so there's no need to email me about that particular angle.
Over the longer term, however, I expect companies like Nordic American, Frontline
Earlier this year, we identified competitor OMI
Fool contributor Toby Shute's college nickname was not Toby the Tank. He doesn't own shares in any company mentioned. The Motley Fool has a disclosure policy.