8.3%-Yield SFL Stock Hit Another Record High: More Gains to Come?
January 16, 2024
Why SFL Corporation Ltd Is Set to Reward Investors
Contrarian plays with high long-term potential are great, but not everyone has a high risk tolerance. For those who like a stock with predictable cash flow; a rising share price; and safe, high-yield dividends, look no further than SFL Corporation Ltd (NYSE:SFL).
I’ve been following SFL stock for a while. When I wrote about SFL Corporation in January 2022, its stock was trading at $8.53 per share and paid dividends of $0.18 per share. Fast-forward to December 2023, and the stock hit a new all-time record high, for a gain of 41.85%. Moreover, its dividends have been on the rise.
Thanks to the company’s robust outlook, shareholders can probably expect SFL stock’s price to hit new record highs over the coming quarters—and its dividends to keep rising.
So, what does SFL Corporation Ltd do?
Don’t look to its name for any indicators. The ambiguously named corporation is an international marine infrastructure company that owns and controls a $4.1-billion portfolio of ships and oil rigs. (Source: “Q3 2023 Results Presentation,” SFL Corporation Ltd, last accessed January 9, 2024.)
Whereas many marine shipping companies specialize in specific industries like oil and natural gas, SFL has a diverse fleet that gives it legs through multiple market cycles. At the time of the company’s 2023 third-quarter presentation, its portfolio consisted of the following:
- 36 container ships (contract duration of 6.3 years)
- 15 tanker ships (contract duration of 4.9 years)
- 13 dry bulk ships (contract duration of 4.7 years)
- Seven car carrier ships (contract duration of 7.8 years)
- Two oil rigs (contract duration of 3.9 years)
The weighted contract duration on SFL Corporation’s shipping portfolio is close to seven years.
About 94% of the company’s gross revenues come from long-term charters. This provides it with stability in terms of revenues and operating costs. The situation helps juice SFL stock’s reliable, high-yield dividends.
A few of the company’s customers are ConocoPhillips (NYSE:COP), “K” Line America, Inc., Koch Industries, Inc., Phillips 66 (NYSE:PSX), and Volkswagen Group (ETR:VOW3, OTCMKTS:VLKPF).
SFL Corporation’s fleet size is always in flux as the company evolves to meet industry demand.
For instance, the first of four liquid natural gas (LNG) carriers were delivered to SFL in the third quarter of 2023, with the remaining vessels expected to be delivered by the end of June 2024. It has already inked 10-year time charters for these LNG carriers with Volkswagen and “K” Line.
In August, the company announced a new $100.0-million contract for its harsh-environment, semi-submersible oil drilling rig “Hercules.” The contract, which is for one well plus one optional well, is expected to begin in the second quarter of 2024. (Source: “New $100 Million Contract for Semi-Submersible Rig Hercules,” SFL Corporation Ltd, August 14, 2023.)
“With this contract, SFL has now approximately $200 million of revenue backlog on Hercules and secured undisrupted employment for the rig until the fourth quarter of 2024,” said Ole B. Hjertaker, SFL Corporation Ltd’s CEO. (Source: Ibid.)
Q3 Net Income Up 73% Quarter-Over-Quarter
For the third quarter ended September 30, 2023, SFL announced that its revenues climbed by 24.5% quarter-over-quarter to $204.9 million. (Source: “Preliminary Earnings Release Q3 2023,” SFL Corporation Ltd, November 8, 2023.)
The company’s third-quarter net income went up by 73% quarter-over-quarter to $29.3 million, or $0.23 per share. Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) came in at $122.4 million from consolidated subsidiaries, plus $7.9 million from 49.9%-owned associated companies.
SFL Corporation ended the third quarter of 2023 with $118.0 million in cash and cash equivalents.
SFL Stock Paid 79th Consecutive Quarterly Dividend
SFL Corporation’s dividend can fluctuate depending on market conditions, but thanks to its diverse fleet, it has been able to continue paying high-yield dividends.
As you can see in the chart below, during the worst economic crisis in 100 years (the COVID-19 pandemic), the company reduced its payout from $0.35 to $0.15. The board began raising SFL stock’s dividend again in the third quarter of 2021, and it has raised the dividend six times since then. (Source: “Dividend History,” SFL Corporation Ltd, last accessed January 9, 2024.)
In early November 2023, SFL’s board declared the company’s 79th consecutive quarterly dividend, raising the amount from $0.24 to $0.25 per share. (Source: “Third Quarter 2023 Results,” SFL Corporation Ltd, November 8, 2023.)
That works out to a yield of 8.31% (as of this writing).
Commenting on SFL stock’s dividend increase, Hjertaker said, “We are very pleased to increase the distribution to our shareholders as we take delivery of our first dual-fuel newbuilding and pay our 79th consecutive dividend.” (Source: Ibid.)
He continued, “Our harsh environment semi-submersible rig Hercules is back in operation, and the next three car carrier newbuilds will be delivered over the next few quarters. This, combined with strong contract renewals for existing vessels, is expected to increase our charter revenues and further support a long term distribution capacity.”
Chart courtesy of StockCharts.com
In terms of share price, SFL stock has been on a tear since cratering during the 2020 health crisis, which, for SFL, lasted until the end of 2021. Since then, the stock has rallied by an impressive 143% (as of this writing). On December 5, 2023, it hit a new record intraday high of $12.10.
As of this writing, SFL stock is up by about 30% over the last six months and about 40% year-over-year.
The Lowdown on SFL Corporation Ltd
SFL Corporation Ltd is a diversified marine shipping company with a growing fleet of vessels and highly predictable cash flow from long-term contracts.
It also has a $3.6-billion fixed-revenue backlog. Tested through multiple market cycles, this has allowed SFL stock to pay dividends every quarter since going public in 2004.
