Nordic American Tankers (NYSE:NAT) announced this week that it agreed to acquire two Suezmax vessels for $36.6 million apiece. The ships, which were built in 2005, will expand Nordic American Tankers' fleet to 22 Suezmaz ships. It's a move that should also fuel future dividend increases at a company that already yields more than 11%.
Sticking with what works
Nordic American Tankers noted that these ships are essentially sister ships to the rest of its fleet, as the company's business model is built around only owning Suezmax ships. The company notes this is of significant importance, as it provides both operational and cost synergies that enable the company to earn more money, which it, in turn, sends back to investors in the form of a very hefty dividend.
This is a bit of a different approach than competitors like Frontline (NYSE:FRO) which has a bit more of a diversified fleet consisting of 17 Suezmax vessels and 29 Very Large Crude Carriers, or VLCCs -- and Teekay Tankers (NYSE:TNK), which is also diversified, as it owns a fleet of Aframax tankers, Suezmax tankers, product tankers, and one VLCC. For Nordic American Tankers, its focus on simplicity is what it's using to fuel its extra-large dividend to investors.
It's a focus that, right now, is working well for the the company, as Nordic American Tankers' dividend is well above that of its rivals. Frontline currently doesn't pay anything, while Teekay Tankers yields 3.38%. Meanwhile, this focus, combined with improving market conditions, enabled Nordic American Tankers to strongly improve its operating cash flow this past quarter, which was also highlighted by the fact that its net income was positive for the first time in four years. Those improvements, combined with the growth from these new ships, will help strengthen a dividend that had been all over the map during the past few years.
The overall improvements in the tanker market was also apparent last quarter at Teekay Tankers, as it had a solid first quarter. Teekay Tankers reversed its year-ago loss, and declared its fixed-quarterly dividend of $0.03 per share. That fixed divided, while much lower, is a nice anchor in for investors, though its payout has also fluctuated wildly during the past few years. Frontline, on the other hand, hasn't yet experienced the turn in the market, as the company turned in another net loss on the quarter, which is why it didn't declare a dividend for the quarter.
Dividend investors have always been drawn to the high yields of tanker companies. The problem is that these payouts can fluctuate when these companies hit the rough seas of stormy economic times. That being said, Nordic American Tankers' focus on only owning one type of vessel should anchor its growth, and help improve its already large dividend, as the company heads into what appears to be calmer market conditions.