Why Gains From DHT Stock Could Be on the Horizon
Turmoil in the Red Sea has continued to have negative impacts on global marine traffic, with certain maritime shipping companies suspending their travels through the region.
In early March, a Belize-flagged, U.K.-owned cargo ship was attacked by Yemen’s Houthis. The ship sunk, spilling oil and fertilizer into the Red Sea.
Since November 19, 2023, there has been an escalation by the Houthis, resulting in shipping companies electing to reroute their vessels around the southern tip of Africa. This has increased shipping times by more than 10 days, which has resulted in global delays in the delivery of many goods.
The biggest benefactor of this uncertainty has actually been marine shipping companies, as their time charter equivalent (TCE) rates have soared over the last number of months. This has especially been true for oil and natural gas shipping companies like DHT Holdings Inc (NYSE:DHT).
The global demand for oil continues to be near record-high levels, and crude oil prices could go up in 2024. This, coupled with a shortage of very large crude carriers (VLCCs)—not a single new VLCC will be delivered in 2024—should result in exceptionally high long-haul shipping rates and record-high VLCC profits in 2024 and 2025.
DHT Holdings is an independent crude oil tanker company with an international fleet consisting of 24 VLCCs as of the end of 2023. (Source: “DHT Holdings, Inc. Fourth Quarter 2023 Results,” DHT Holdings Inc, February 6, 2024.)
Each one of these ocean behemoths can transport about two million barrels of oil.
DHT Holdings’ fleet is about to get a lot bigger.
On February 28, the company announced that it was building four large VLCCs, which will be ready for delivery between April and December 2026. The average price for the four ships is $128.5 million. The company also has options for four additional VLCCs, which could be delivered in the first half of 2027. (Source: “DHT Orders Four Large VLCCs,” DHT Holdings Inc, February 28, 2024.)
On one hand, 2026 and 2027 are a few years away, so the new ships won’t contribute to the company’s bottom line for a while. On the other hand, the company’s announcement suggests that it expects the VLCC market to remain robust for years to come.
Moreover, management said DHT Holdings Inc won’t be issuing new capital for the acquisitions. Instead, it will finance the projects with cash flows from operations, available liquidity, and new mortgage debt.
For passive income investors, the company’s upcoming new vessels are expected to be accretive to the company’s earnings, with DHT Holdings maintaining its dividend policy of paying out 100% of its ordinary net income to its shareholders through quarterly cash distributions.
DHT Holdings Inc Reported 2nd-Best Earnings in Its History
For the fourth quarter of 2023, DHT Holdings announced that its shipping revenues increased by 9.2% quarter-over-quarter to $142.3 million. Its adjusted net revenues grew by 6.1% quarter-over-quarter to $94.5 million. (Source: DHT Holdings Inc, February 6, 2024, op. cit.)
During the quarter, the company achieved average TCE earnings of $42,800 per day. This figure was made up of $43,600 per day for the spot market and $39,600 per day for time charters.
Everything is relative. To put that average TCE rate into context, DHT Holdings has improved its cash break-even level for 2024 to $18,600 per day for its fleet as a whole and $13,800 per day for its fleet that operates in the spot market.
DHT Holdings Inc’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) grew in the fourth quarter of 2023 by 8.2% sequentially to $72.9 million. Its fourth-quarter net income advanced 13.9% quarter-over-quarter to $35.3 million.
Its full-year net income came in at $161.4 million, the company’s second-best annual net income in its history.
DHT Holdings Stock Paid 56th Consecutive Quarterly Dividend
While TCE rates can fluctuate based on supply and demand, what doesn’t ebb and flow is DHT Holdings Inc’s commitment to paying quarterly dividends.
In February 2024, DHT stock paid dividends of $0.22 per share. That was up by 15.8% from $0.19 in November 2023. (Source: “Dividend Information,” DHT Holdings Inc, last accessed February 5, 2024.)
This works out to a yield of 8.99% (as of this writing). It also marks DHT Holdings stock’s 56th consecutive quarterly cash dividend, and is in line with the company’s capital allocation policy to pay out 100% of its net income.
The company’s payout doesn’t always go up. For instance, in February 2023, DHT stock paid out $0.38 per share. Then, in May 2023, it paid out $0.23 per share.
Record-high energy consumption and demand, plus high TCE rates, have been helping juice DHT Holdings stock’s dividends lately. Since the end of 2022, the payouts have been at least $0.19 per share each quarter.
DHT Stock Up 14% in 2024 & Has 50% Upside
I’ve been following DHT Holdings stock for a while now. When I wrote about DHT Holdings Inc in 2021, its shares were trading at $5.38 (price adjusted for dividends, etc.). On February 16, 2024, the stock hit an intraday high of $11.90, its highest trading level since 2011, for a three-year gain of 113%.
DHT stock is down a little from that 52-week high of $11.90, but it’s still up by 30% over the last six months and 15% year-to-date (as of this writing).
Those are decent gains, and Wall Street analysts think DHT Holdings stock has more room to run. They’ve issued a 12-month forecast in the range of $12.67 to $17.00 per share. This points to potential gains in the range of approximately 12.5% to 50%.
Chart courtesy of StockCharts.com
The Lowdown on DHT Holdings Inc
DHT Holdings Inc is a leading independent crude oil tanker company that has been reporting strong financial results and is going to be expanding its shipping fleet.
The company recently increased its quarterly distribution, and it hasn’t missed a payout for 56 consecutive quarters (and counting).