Hafnia Ltd Focused on Returning Capital
Dividend stocks that offer high yields and return significant price appreciation are rare, but they do exist. Take Hafnia stock, for instance.
Hafnia Ltd (NYSE:HAFN) operates the largest fleet of product and chemical tankers in the world. The company currently manages a fleet of over 250 vessels. (Source: “Corporate Overview,” Hafnia Ltd, last accessed July 4, 2024.)
Hafnia stock has delivered impressive gains to income investors, up 19.5% in 2024 and 74.0% over the past year to July 3.
HAFN stock reached a record high of $8.99 in May. It’s currently hovering above its 200-day moving average (MA) of $8.06 and 50-day MA of $8.27.
In addition, the Hafnia stock chart shows the stock in a golden cross (a bullish technical crossover when the 50-MA is above the 200-day MA).
Chart courtesy of StockCharts
Revenues More Than Tripled
Hafnia Ltd generates significant revenues, including a 38.7% increase to a record $2.67 billion in 2023.
Revenues grew 223% from 2019 to 2023. The compound annual growth rate (CAGR) during this period was an impressive 34%.
| Fiscal Year | Revenues | Growth |
| 2019 | $827.9 million | 124.7% |
| 2020 | $874.1 million | 5.6% |
| 2021 | $811.2 million | -7.2% |
| 2022 | $1.92 billion | 137.5% |
| 2023 | $2.67 billion | 38.7% |
(Source: “Hafnia Limited (HAFN),” Yahoo! Finance, last accessed July 4, 2024.)
I expect the growth to continue depending on the state of the global economy. Hafnia reported first-quarter revenues of $784.9 million, up 27.3% year over year, which provides a pathway to over $3.0 billion in revenues this year.
Gross margins fell to a five-year low of 23.1% in 2021 prior to exploding higher to a record 54.5% in 2022. Hafnia saw its gross margins contract in 2023, but this didn’t impact profits.
| Fiscal Year | Gross Margins |
| 2019 | 31.1% |
| 2020 | 39.2% |
| 2021 | 23.1% |
| 2022 | 54.5% |
| 2023 | 39.8% |
The last two years saw Hafnia Ltd deliver the highest generally accepted accounting principles (GAAP) profitability on record. The company earned $0.43 per diluted share in the first quarter, up 24.7% versus the same quarter in 2023.
| Fiscal Year | GAAP-Diluted EPS | Growth |
| 2019 | $0.21 | 228.0% |
| 2020 | $0.41 | 97.5% |
| 2021 | -$0.15 | -137.4% |
| 2022 | $1.54 | 1,107.7% |
| 2023 | $1.56 | 1.3% |
(Source: Yahoo! Finance, op. cit.)
A look at the funds statement shows that Hafnia has generated strong positive free cash flow (FCF) over the last four years. This included the record $876.4 million in 2023, up 170.9% versus 2022. The strong FCF allows for dividends and other uses such as debt reduction, share buybacks, and capital expenditures.
| Fiscal Year | FCF (Millions) | Growth |
| 2019 | -$35.7 | N/A |
| 2020 | $349.9 | -1,080.1% |
| 2021 | $79.4 | -77.3% |
| 2022 | $323.5 | 307.4% |
| 2023 | $876.4 | 170.9% |
(Source: Yahoo! Finance, op. cit.)
The financial situation is healthy despite Hafnia carrying $1.2 billion in total debt and $128.9 million in cash. The company has been active in paying down over $1.5 billion in debt over the last four years. (Source: Yahoo! Finance, op. cit.)
| Fiscal Year | Debt Repayment (Millions) |
| 2020 | $230.9 |
| 2021 | $622.5 |
| 2022 | $438.9 |
| 2023 | $314.5 |
(Source: Yahoo! Finance, op. cit.)
The strong profitability and FCF suggest there are no concerns. This is further supported by a strong interest coverage ratio of 12.4 times in 2023.
Hafnia Ltd has also easily covered its interest payments via much higher earnings before interest and taxes (EBIT), with the exception of 2021.
| Fiscal Year | EBIT (Millions) | Interest Expense (Millions) | EBIT/Interest Ratio |
| 2020 | $198.4 | $46.9 | 4.23X |
| 2021 | -$12.1 | $39.0 | N/A |
| 2022 | $849.4 | $91.1 | 9.32X |
| 2023 | $876.9 | $77.4 | 11.33X |
(Source: Yahoo! Finance, op. cit.)
The Piotroski score, an indicator of a company’s balance sheet, profitability, and operational efficiency, shows a reasonable reading of 4.0, which is just below the midpoint of the 1.0 to 9.0 range.
Hafnia Stock’s Mandate to Return Capital
Hafnia stock’s forward dividend yield is high at 16.69% after the company raised its annual dividend by 32.7% in April to $1.38 per share, compared to the previous $1.04 per share. (Source: Yahoo! Finance, op. cit.)
The payout ratio of 68.98% is on the higher side, but Hafnia has shown no issues with this level. I expect the dividend growth to continue based on the current results.
| Metric | Value |
| Dividend Growth Streak | 2 years |
| Dividend Streak | 3 years |
| Dividend Coverage Ratio | 1.9X |
The Lowdown on Hafnia Stock
While institutional ownership is only 19.7%, Hafnia stock has extremely high insider ownership of 54.2%. The high insider interest entices the company to deliver strong results.
So, while I doubt HAFN stock will produce the same price appreciation, the dividend yield of 16.69% is extremely attractive for income investors. I expect the yield to decline to more reasonable levels as the Hafnia stock price rises.