An Ideal Pick for Contrarian Income Investors?
Energy products are constantly being transported around the world and, in many circumstances, the only mode of transport is on water.
Natural gas is expensive to transport across the oceans, as it requires specialized ships built with expensive pressurized storage. As a viable alternative, companies can transport liquefied natural gas (LNG) that is cooled down to liquid form, so it doesn’t require pressurized storage. This means that it’s cheaper to move.
To play this LNG segment, consider FLEX LNG Ltd (NYSE:FLNG), a $1.4-billion market-cap company focused on the transport of LNG via its fleet of 13 modern vessels. Moreover, since the majority of the ships are in long-term fixed-rate charter contracts, there is some revenue certainty. (Source: “Company Profile,” FLEX LNG Ltd, last accessed November 26, 2024.)
FLNG stock is currently hovering at $26.02 on November 26, which is roughly the midpoint of its 52-week range of $22.80 to $31.41.
While the shares have not delivered any price appreciation this year, contrarian income investors receive a nice dividend at $3.00 annually with FLNG stock, plus the opportunity for a rally.
Chart courtesy of StockCharts.com
Steady Third Quarter Supports FLNG Stock’s Solid Dividend
FLEX LNG’s revenues advanced 209.2% from $120.0 million in 2019 to the record $371.0 million in 2023. Its revenues have grown in six straight years, dating back to $27.3 million in 2017.
| Fiscal Year | Revenues (Millions) | Growth |
| 2019 | $120.0 | 55.4% |
| 2020 | $164.5 | 37.1% |
| 2021 | $343.4 | 108.8% |
| 2022 | $347.9 | 1.3% |
| 2023 | $371.0 | 6.6% |
(Source: “FLEX LNG Ltd,” MarketWatch, last accessed November 26, 2024.)
The third quarter saw revenues of $90.5 million, down 4.3% year over year but remaining just above the company’s guidance of $90.0 million.
FLEX LNG guided revenues to around $90.0 million for the fourth quarter and $353.0 million to $355.0 million for 2024. In the nine months to September 30, the company reported revenues of $265.4 million, down 3.1% versus the same period in 2023. (Source: “Third Quarter Result Presentation,” FLEX LNG Ltd, November 12, 2024.)
Based on the results to date in 2024, the company is on target to come close to the analyst consensus of $356.3 million for 2024. (Source: “FLEX LNG Ltd (FLNG),” Yahoo! Finance, last accessed November 26, 2024.)
In order to drive revenues higher, the key will be FLEX LNG’s ability to expand its fleet. This shouldn’t be an issue since the company generates consistent profitability, plus it was free-cash-flow (FCF) positive in 2022 and 2023.
Strong gross margins have resulted in three straight years of higher generally accepted accounting principles (GAAP) profitability from 2021 to 2023. The record high was $3.51 per diluted share in 2022 prior to dropping to $2.22 per diluted share in 2023. (Source: MarketWatch, op. cit.)
FLEX LNG Ltd reported $0.32 per diluted share in the third quarter and $1.34 per diluted share for the nine months to September.
On an adjusted basis, the company earned $0.53 per diluted share in the third quarter, a penny below the consensus estimate.
Analysts expect FLEX LNG to report $2.37 per diluted share in 2024 and $2.10 per diluted share in 2025. (Source: Yahoo! Finance, op. cit.)
The company’s balance sheet held $1.67 billion in total debt and $289.5 million in cash at the end of September. (Source: Yahoo! Finance, op. cit.)
FLEX LNG has consistently covered its interest payments via higher earnings before interest and taxes (EBIT). The interest coverage ratio of 1.8 times is manageable.
Steady Dividends Are the Company’s Goal
FLEX LNG recently declared another quarterly dividend of $0.75 per share with an ex-dividend date of November 27, payable on December 11. This amount has been in place since December 2021 after being raised from the previous $0.40 per share in September 2021. (Source: Yahoo! Finance, op. cit.)
The company attributed its ability to pay the dividend to its strong financial position and contract backlog.
FLNG stock’s attractive forward yield of 11.53% is largely due to the price weakness over the past year. Over the last 10 years, the average dividend yield was 5.3%.
FLEX LNG Ltd accesses its profits and other surplus cash to make its dividend decision. This is a risk with FLNG stock, but so far, there have been no announced changes.
| Metric | Value |
| Dividend Streak | 6 years |
| 10-Year Average Dividend Yield | 5.3% |
| Dividend Coverage Ratio | 1.4X |
The Lowdown on FLNG Stock
The interesting thing about FLEX LNG is the heavy insider ownership of 43.1% of the outstanding shares. High insider interest could be viewed as a positive sign. (Source: Yahoo! Finance, op. cit.)
FLNG stock has not delivered the price appreciation I would like to see, but for income investors, the strong mandate to pay dividends and the high yield are compelling.