Dorian LPG Ltd: Could Undervalued 14.5%-Yielder Have 40%+ Upside?
February 12, 2025
LPG Stock: A Great Contrarian Play
Soaring demand for liquified petroleum gas (LPG) and growth opportunities provide the perfect tailwinds for undervalued midstream shipping company Dorian LPG Ltd (NYSE:LPG).
LPG refers to hydrocarbon gases such as propane and butane, both of which are easily flammable in their liquid, pressurized states. This is why it’s used mainly for heating and cooking purposes, in motor engines, and for broad industrial uses.
From 2024 through 2030, the global LPG market is projected to grow by 6.5% to more than $244.0 billion. (Source: “LPG Market Size and Growth Outlook to Reach USD 244.11 Billion by 2030,” Industry Today, February 3, 2025.)
A lot of that demand is coming from countries that don’t have big LPG reserves or might not have any, which means they have to import it. In many cases, the best way to import large quantities of LPG is via marine vessels. And that’s where Dorian LPG comes in.
Dorian LPG Ltd is a liquefied petroleum gas (LPG) shipping company and a leading owner and operator of 25 modern Very Large Gas Carriers (VLGCs). These large vessels are capable of carrying up to more than two million barrels of oil. (Source: “Investor Presentation January 2025,” Dorian LPG Ltd, last accessed February 5, 2025.)
The partnership’s fleet consists of 25 modern VLGCs with an average age of 10 years, versus the global fleet average of 11.5 years. Dorian’s current fleet includes 16-scrubber equipped vessels and four dual-fuel VLGCs. Scrubbers and dual-fuel vessels allow for better optimization, thereby lowering costs and emissions.
The company actually said that it would be upgrading its VLGCs to ship ammonia, to take advantage of the expected growth in the trade of that chemical for the hydrogen economy.
Encouraging Q3 Results
For the third quarter ended December 31, 2024, Dorian reported revenue of $80.7 million, down from $163.0 million in the same prior-year period. (Source: “Dorian LPG Ltd. Announces Third Quarter Fiscal Year 2025 Financial Results,” Dorian LPG Ltd, January 31, 2025.)
The time charter equivalent (TCE) rate per available day for the fleet was $36,071, down from $71,938 in the same prior-year period. Dorian’s net income came in at $21.4 million, or $0.50 per share, while its adjusted net income was $18.5 million, or $0.423 per adjusted share. The company’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) were down at $45.2 million.
Commenting on the results, John C. Hadjipateras, Dorian’s chairman, president, and chief executive officer, said, “The quarterly results reflected an improving market environment. With additional export capacity coming on line in the United States this year and a modest orderbook, we have a positive market outlook. Our dividend payout in excess of the quarter’s net income reflects our constructive view of the VLGC market over the coming months.”
An Irregular Cash Dividend of $0.70/Share
Returning value to shareholders is an important part of Dorian’s business. Since its 2014 initial public offering (IPO), the company has returned over $850.0 million in cash to shareholders through dividends and buybacks.
In fiscal 2024, Dorian LPG paid four irregular dividends, totaling $4.00. In fiscal 2025, it has paid three irregular dividends so far: two at $1.00 and a third-quarter dividend of $0.70, or $3.70 on an annual basis, for a forward dividend yield of 14.58%. (Source: “Dorian LPG Ltd. Declares Irregular Cash Dividend of $0.70 Per Share, Provides Update for Third Quarter 2025, and Announces Third Quarter 2025 Earnings Conference Call Date,” Dorian LPG Ltd, January 24, 2025.)
Since September 2021, Dorian has cumulatively paid $15.20 per share in irregular dividends, totaling more than $620.0 million.
That ultra-high-yield dividend is safe, too. The payout ratio is just 68.14%, which is well below the 90% threshold I’m willing to stomach. This gives the company more than enough financial wiggle room to both maintain and raise its quarterly payout, once market conditions fully improve.
In addition to dividends, Dorian has also repurchased approximately 33% of outstanding shares since its May 2014 IPO.
LPG Stock: 40%+ Upside Potential?
Coming off a record-breaking fiscal 2024, with TCE of nearly $66,000 per operating day, Dorian’s current stock results must be more than a little disappointing. LPG stock hit a record intraday high of $51.66 in May 2024, but shares trended lower in the back half of the year.
However, improving market conditions have seen LPG stock rebound over the last two months. While it may be down 18% on an annual basis, the stock is up more than six percent over the last five trading days (to February 5), and it’s rallied an impressive 7.4% in 2025.
Wall Street thinks that bigger gains are ahead, with analysts providing a 12-month share price average of $32.00 per share to a high of $35.00 per share. This points to potential upside of approximately 30% to 41.5%.
Why the optimism?
There are strong fundamentals in the LPG freight market. This includes global volume growth with resilient U.S. natural gas liquid production prospects.
Infrastructure expansions should enable U.S. LPG production and export growth, as well as solid Middle East exports, in spite of production cuts from the Organization of the Petroleum Exporting Countries (OPEC). There is also big demand from the Far East, mainly coming from China and India.
The freight market is home to multiple trade routes. U.S. to North West Europe has become more significant since Russia invaded Ukraine, and the U.S. Gulf to Asia route continues to be a key freight market given significant U.S. export volumes. VLGCs also have low priority at Panama Canal, making the segment susceptible to congestion-driven delays, which translates into longer trips.
Chart courtesy of StockCharts.com
The Lowdown on Dorian LPG Ltd
Dorian is an LPG marine shipping company and a leading owner and operator of VLGCs. While Dorian’s financials are not as strong as they were in its record fiscal 2024 year, industry dynamics are pointing to a rebound.
America’s LPG supply is expected to keep prices competitive, and expanded infrastructure should support U.S. LPG supply growth. On the supply front, global seaborne LPG volumes are up, with U.S. exports up by 10% on an annual basis and Arabian Gulf exports up by three percent.
While some investors have been spooked by the recent slide in the company’s share price, 325 institutional holders believe the outlook for Dorian LPG remains robust. Some of the biggest institutional holders include BlackRock Inc, Pacer Advisors, Inc., The Vanguard Group, and Morgan Stanley. (Source: “Dorian LPG Ltd. (LPG),” Yahoo! Finance, last accessed February 5, 2025.)
