Nordic American Tankers Stock: Shares of 13%-Yielder Have 200% Upside Potential
August 27, 2024
Nordic American Tankers Declares 107th Consecutive Dividend
Nordic American Tankers stock is looking like an interesting opportunity right now.
It’s been a great year for the crude oil marine shipping industry with inventories dropping and geopolitical tensions rising. And with the Federal Reserve expected to announce its first interest rate cut for this cycle in September, and the U.S. expected to avoid a recession, investor optimism is helping drive broad-based, bullish sentiment. And that sentiment is good news for Nordic American Tankers Ltd (NYSE:NAT), a marine shipping firm that calls itself a “Dividend Company.”
Nordic American Tankers acquires and charters double-hull tankers in Bermuda and internationally. It currently operates a fleet of 20 Suezmax crude oil tankers. In fact, it only has Suezmaxes in its fleet. (Source: “Overview,” Nordic American Tankers Ltd, last accessed August 20, 2024.)
Suezmax tankers are a medium-sized oil tanker, larger than Aframax but smaller than VLCC. But they are the largest ship that can transit the Suez Canal, the artificial waterway that connects the Mediterranean Sea with the Red Sea.
Suezmax tankers are around 900 feet long and have a capacity of 120,000 to 200,000 deadweight tonnage (dwt). As an oil tanker, that means they can carry 800,000 to more than 1,000,000 barrels of oil. They are also primarily used on long-haul routes; like a trip from Saudi Arabia to the U.S.
Solid First-Quarter Results
Nordic American Tankers reported a solid first quarter, with total net voyage revenue inching up 2.2% on a sequential basis to $60.5 million. Net profits came in at $15.1 million, or $0.07 per share, down slightly from the $17.5 million, or $0.08 per share, recorded in the previous quarter. (Source: “Nordic American Tankers Ltd (NYSE: NAT) – Report as per March 31, 2024 – Dividend is a top priority,” Nordic American Tankers Ltd, May 29, 2024.)
The time charter equivalent (TCE) rate average was $33,570 per day per ship. The daily operating costs per ship are about $9,000. That’s the total TCE rate. The daily TCE rate for the spot market in the first quarter was higher, at $34,320. Currently, 16 of Nordic American Tankers’ 20 vessels are in the spot market.
The company has one of the lowest debt levels among publicly traded tanker companies, ending the quarter with cash and cash equivalents of $45.94 million.
Nordic American Tankers Stock: Dividends a “Top Priority”
Emphasizing that dividends are a top priority, Nordic American Tankers declared its 107th consecutive quarterly dividend in May. Nordic American Tankers stock paid out a first-quarter dividend of $0.12 per share, or $0.48 per share on an annual basis, for a current forward dividend yield of 13.19%. (Source: “Dividends,” Nordic American Tankers Ltd, last accessed August 20, 2024.)
Despite steady earnings and a robust outlook, NAT stock has not fared as well. As of this writing, Nordic American Tankers stock is down 8.8% year to date and 3.7% year over year. While the stock is in the red for the year, the outlook is a little more encouraging, with Wall Street analysts providing a 12-month share price target range of $4.50 to $11.00 per share. This points to potential gains of 23% to 202% with Nordic American Tankers stock.
Chart courtesy of StockCharts.com
The Lowdown on Nordic American Tankers Stock
Nordic American Tankers Ltd owns one of the largest fleets of Suezmax tankers in the world. It has a strong balance sheet and is reporting solid earnings, and the outlook remains robust.
The world is not short of political uncertainty, and industry analysts do not see this going away anytime soon. Demand for oil remains high with the fragmented trade picture and tight supply of ships.
In fact, the limited supply of new ships may be the most important factor pointing to tight supply/demand balance for several years. Only six new vessels will enter the Suezmax fleet in 2024, followed by 23 in 2025 and 38 in 2026. So far, 13 newbuild orders are booked for 2027 and only one for 2028.
All of this is good for the short- and long-term outlooks for Nordic American Tankers stock. After all, when there is limited supply of ships, rates generally go up. And as a general rule, as rates go up, earnings are higher, which results in higher dividends.
