LPG Stock Might Be Perfect for Income & Growth Investors
Oil prices have fallen by roughly 25% since their June highs, but the energy industry is resilient. For the first half of 2022, oil stocks were some of the best bets as the S&P 500 tumbled. That impressive run had to do with rising oil prices, which were juiced even higher by Russia’s unprovoked invasion of Ukraine.
Fears of a recession, though, put an end to that rally, with the Energy Select Sector SPDR Fund (NYSEARCA:XLE) falling by 29% from June 8 to July 14. It has since rebounded by 22% but still needs to climb by more than 10% to get back to where it was in June.
Although the fears of a recession, lower energy demand, and higher oil production from the U.S. and Saudi Arabia could see oil prices fall, energy companies have continued to report excellent financial results. During the second quarter of this year, energy company profits soared by nearly 300%. The next closest sector was industrials, which saw its earnings rally by just 32% in the same quarter. Since the pre-pandemic glory days of 2019, energy companies have seen their earnings explode by 400%. (Source: “Oil Prices Have Been Falling. Why It’s Time to Buy Oil Stocks.” Barron’s, August 19, 2022.)
Nevertheless, energy stocks remain historically cheap, with the Energy Select Sector SPDR Fund trading at just 7.6 times its 12-month forward earnings. That’s below the S&P 500’s 17 times 12-month forward earnings and below its own 10-year average of 16.4 times. The forward price-to-earnings (P/E) ratios are based on the rolling 12-month earnings-per-share (EPS) estimates.
In addition to being undervalued, energy stocks have been returning boatloads of cash to investors in the form of dividends. One such stock that continues to return value to shareholders via a rising share price and ultra-high-yield dividends is Dorian LPG Ltd (NYSE:LPG).
The liquefied petroleum gas (LPG) shipping company is a leading owner and operator of 22 modern, very large gas carriers (VLGCs). Those VLGCs have an aggregate carrying capacity of approximately 1.8 million cubic meters and an average age (excluding two chartered-in VLGCs) of 7.5 years. The average age of the ships in the company’s global fleet is 10.6 years. (Source: “Investor Presentation: August 2022,” Dorian LPG Ltd, last accessed August 24, 2022.)
The company added one VLGC to its fleet during the second quarter of this year, with a further 11 vessels expected to be added before the end of 2022.
Demand for Seaborne LPG Transport Is High
The demand for LPG fluctuates, but right now, spot LPG rates are robust and global seaborne LPG volumes are healthy, with U.S. waterborne exports up by three percent year-over-year and Arabian Gulf waterborne exports up by 13% year-over-year.
The U.S. LPG market continues to dominate and force price competition among all suppliers. Year-to-date, U.S. LPG exports account for 46% of all global seaborne trade. Over the coming years, a new wave of Chinese propane dehydrogenation projects is expected to drive up the demand for LPG. More than 30 planned projects are expected to add 23 million tonnes per year of LPG demand through 2025. It takes four VLGCs to transport one million tonnes per year of LPG. If the planned projects come online, they would require roughly 94 VLGSs.
Moreover, the U.S. LPG supply is expected to keep prices competitive, with U.S. production staying near record levels and inventories remaining 12% below the five-year average.
Dorian LPG Ltd Reports Fiscal Q1 2023 Results & Declares $1 Dividend
For the first quarter of fiscal 2023 (ended June 30, 2022), Dorian LPG announced that its revenues—which represent net pool revenues—went up by 22% year-over-year to $76.8 million. (Source: “Dorian LPG Ltd. Declares Irregular Cash Dividend of $1.00 Per Share and Announces First Quarter Fiscal Year 2023 Financial Results,” Dorian LPG Ltd, August 3, 2022.)
The company’s first-quarter net income came in at $24.8 million, or $0.62 per diluted share, compared to $5.9 million, or $0.14 per diluted share, in the same period of fiscal 2022.
Dorian LPG Ltd’s adjusted net income in the three months ended June 30, 2022 was $22.4 million, or $0.56 per diluted share, compared to $5.4 million, or $0.13 per diluted share, in the three months ended June 30, 2021.
The time charter equivalent rate for the company’s fleet in the first quarter of fiscal 2023 was $39,608, a 25.5% increase from $31,571 in the same period of the prior year. Meanwhile, the company’s vessel operating expenses per day decreased to $9,378 from $10,131 in the same period of the prior year.
Dorian LPG Ltd also declared an irregular cash dividend of $1.00 per share, returning more than $40.1 million of capital to its shareholders, for a yield of 35.7%.
In addition to providing dividend hogs with ultra-high-yield dividends, Dorian LPG stock has been trouncing the broader market in terms of share price, up by 43% over the last six months and 60% year-to-date.
Due to seasonal demand and where we are in the economic cycle, LPG prices fluctuate, which affect Dorian LPG Ltd’s earnings, dividends, and share price. Right now, LPG prices are in a sweet spot, which is why analysts continue to provide a bullish outlook for LPG stock.
Of the analysts providing a 12-month share-price target for Dorian LPG Ltd, their average estimate is $20.00 and their high estimate is $22.00, for potential gains in the range of 32% to 45%. Even their low estimate of $17.00 points to potential gains of 12% from Dorian LPG stock.
Chart courtesy of StockCharts.com
The Lowdown on Dorian LPG Ltd
Dorian LPG Ltd is a leading LPG shipping company with a massive fleet of vessels.
Thanks to the ongoing high demand for LPG, the company should continue to reward Dorian LPG stockholders with sizeable share-price gains and ultra-high-yield dividends.