SFL Corporation Ltd: 10%-Yielder Has “Strong Buy” Consensus
January 22, 2025
SFL Stock Outpacing S&P 500 in 2025
Today, I’m going to put the income-stock spotlight on SFL Corporation Ltd (NYSE:SFL).
The world economy is expected to underwhelm a little in 2025, with global growth of around three percent. This is below the four-percent-and-higher average over the past number of decades. (Source: “Outlook 2025: Global economy will underwhelm amid huge uncertainty,” Official Monetary and Financial Institutions Forum, January 8, 2025.)
That said, the U.S. economy remains solid, and the economies in China, Japan, and India are expected to perform better than the global average. Growth in the euro area is expected to be solid, too. For the global economy to move, countries need access to the flow of products and services.
The marine shipping industry is complex and dynamic, as shippers navigate economic uncertainty, geopolitical risks, and trade policies; this includes President-elect Donald Trump’s proposed tariffs against Mexico, Canada, China, etc.
To help weather that uncertainty, it’s a good idea to look at marine shipping companies that are more diversified than others. This can help them weather individual sectors that are exposed to various headwinds.
SFL Corporation Ltd is an international marine infrastructure company that owns and controls a $4.7-billion portfolio of 81 vessels and rigs. For some marine shipping companies, less is more, but for SFL Corporation, more is more.
Where many marine shipping companies specialize in specific industries, like oil and gas or dry bulk, SFL Corporation’s fleet diversity gives it legs through multiple market cycles. (Source: “Q3 2024 Results Presentation,” SFL Corporation Ltd, January 13, 2025.)
The company’s current portfolio includes 39 container ships, seven car carriers, 18 tankers, two energy vessels, and 15 dry bulk vessels.
The contract duration on its shipping portfolio consists of:
- 7.5 years for its containers
- 7.8 years for its car carriers
- 3.9 years for its dry bulk ships
- 4.0 years for its offshore vessels (oil rigs)
- 4.3 years for its tankers
This provides SFL Corporation Ltd with stability in both revenue and operating costs. It also helps juice the shipper’s reliable, high-yield dividend.
Some of its customers include Maersk, Volkswagen, Koch, Phillips 66 (NYSE:PSX), and ConocoPhillips (NYSE:COP).
SFL Corporation’s fleet size is always in flux as it evolves to meet industry demand. The company took delivery of two newbuild, long-range product tankers in August and October and of two chemical tankers in August.
Backlog at $4.7 Billion, Providing Excellent Cash Flow Visibility
For the third quarter ended September 30, 2024, SFL Corporation announced that revenue had climbed 33.7% quarter over quarter to $255.3 million. (Source: “Preliminary Earnings Release Q3 2024,” SFL Corporation Ltd, November 6, 2024.)
The company’s operating income increased 52% sequentially to $94.1 million. Third-quarter net income more than doubled to $44.5 million, or $0.34 per share, from $20.6 million, or $0.16 per share, in the second quarter of 2024.
Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) came in at $158.8 million from consolidated subsidiaries, plus there was an additional $7.9 million in adjusted EBITDA from associated minority-owned companies.
SFL Corporation ended the quarter with $164.0 million in cash and liquidity.
Commenting on the third-quarter results, Ole B. Hjertaker, SFL’s chief executive officer, said, “The strength of our operating platform is illustrated by our ability to execute multiple repeat transactions with industry leading counterparties, and we have added more than $2 billion to our backlog so far this year.”
Adding, “Our fixed rate charter backlog now stands at approximately $4.7 billion, of which two thirds is to customers with investment grade rating, providing excellent cash flow visibility.”
SFL Corporation Ltd’s 83rd Consecutive Quarterly Dividend
Because of its reliable cash flow, SFL Corporation provided shareholders with a reliable and, for the most part, growing quarterly dividend. In 2021, SFL stock paid out $0.68 per share, with that number climbing by 35% in 2022 to $0.92 per share. In 2023, the annual distribution increased a further 7.6% to $0.99.
In November, the company declared a quarterly dividend of $0.27 per share, or $1.08 on an annual basis, for a current yield of 10.17%. It has paid out $0.27 per share in the first nine months of 2024. Should it maintain that payout level in the fourth quarter, the annual distribution will increase for a third consecutive year to $1.08 per share.
It’s not all sunshine and rising dividends at SFL Corporation. The company’s dividend payout fluctuates depending on market conditions. As you can see in the chart below, the shipper reduced its payout to save cash during the worst economic crisis in 100 years, from $0.35 to $0.15. After SFL began upping its dividend again in the third quarter of 2021, the company has raised it seven times since then. (Source: “Dividend History,” SFL Corporation Ltd, last accessed January 13, 2025.)
Over time, and tested through multiple market cycles, SFL has paid a dividend every quarter since going pubic in 2004.
SFL Stock Has 45% Upside Potential
Thanks to solid third-quarter results and investor optimism, SFL stock has been performing well of late. And while the year is only two weeks old, the stock is up 7.5% year to date compared to the S&P 500, which is down 0.8%. SFL stock is also up nine percent over the last month and 0.9% over the last year.
The longer-term outlook for SFL stock is pretty robust, with analysts providing a 12-month share price target average of $14.50 and high target of $16.00. This points to potential upside of 32% to 45.6% with an average analyst rating of “Strong Buy.” (Source: “SFL Corporation Stock Forecast,” Stock Analysis, last accessed January 13, 2025.)
Should SFL stock hit its average price target, this would put it just below its May 2024 record high of $14.08 per share. The high target, of course, would put the stock well into fresh record territory.
Chart courtesy of StockCharts.com
The Lowdown on SFL Corporation Ltd
SFL Corporation Ltd remains a diversified marine shipping company with a highly predictable cash flow. It has a massive, fixed revenue backlog of $4.7 billion, two-thirds of which comes from customers that have an investment-grade rating.
The company’s outlook for the next 12 months is robust, with analysts predicting that SFL stock could rally anywhere from 33% to 47%. That’s good news to shareholders and the 280 institutions that hold 50.22% of SFL’s float. Some of SFL Corporation Ltd’s biggest holders include BlackRock Inc., State Street Corporation, Vanguard Group Inc, and Bank of New York Mellon Corporation. (Source: “SFL Corporation Ltd. (SFL),” Yahoo! Finance, last accessed January 13, 2025.)
