Shares of 14.9%-Yielding Nordic American Tankers Rip Higher
January 27, 2025
Nordic American Announces 109th Consecutive Dividend
Long-suffering oil bulls are back, with both West Texas Intermediate (WTI) and Brent crude oil prices rising to their highest levels in four months. WTI is at $77.00 per barrel, while Brent is closing in on $82.00 per barrel.
Why the optimism?
The Biden administration recently announced a number of sanctions targeting Russia’s oil and gas industry. The sanctions are forcing Asian buyers to look to the Middle East, Africa, and the Americas to make up for the lost Russian barrels. (Source: “US hits Russia with toughest sanctions yet,” Reuters, January 10, 2025.)
The sanctions are expected to seriously disrupt Russia’s oil trade with both India and China, two of its biggest customers. Should this strategy prove successful, it will cost Russia billions of dollars each month and undermine how the country pays for its invasion in Ukraine.
Another expected outcome from the sanctions?
Shipping costs for midstream oil and gas companies are also expected to increase. We’re actually seeing that play out right now, especially with shares of Nordic American Tankers Ltd (NYSE:NAT).
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 January 14, 2025.)
A Suezmax tanker is a medium-sized oil tanker, larger than an Aframax but smaller than a Very Large Crude Carrier (VLCC). But it’s 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 with a capacity of 120,000 to 200,000 deadweight tonnage (dwt). As an oil tanker, this means they can carry 800,000 to more than one million barrels of oil. They are also primarily used on long-haul routes; like a trip from Saudi Arabia to the U.S.
Another Solid Quarter for Nordic American Tankers
For the third quarter ended September 30, 2024, Nordic American Tankers reported total net voyage revenue of $52.03 million, up 8.3% from $48.03 million in the same prior-year period. Net income, or profits, increased 16% on an annual basis to $8.7 million, or $0.04 per share. (Source: “Nordic American Tankers Limited (NYSE: NAT) – Report as per September 30, 2024 – Prospects,” Nordic American Tankers Ltd, November 29, 2024.)
During the third quarter, the company’s average time charter equivalent (TCE) for all of its vessels was $30,656 per day. If you want to rent one of its ships, the daily operating cost per day is around $9,000, leaving with a solid margin.
Calls Itself a “Dividend Company”
Many companies pay dividends, but few actually call themselves a “dividend company.” Since its inception in 1995, Nordic American Tankers has been exactly that, a company with a reliable dividend.
Its fleet consists of 20 vessels, but management plans to increase it with a couple more ships, which should enhance Nordic’s dividend payments. In the third quarter, the company declared a dividend of $0.04 per share, or $0.40 per share on an annual basis, for a forward yield of 14.93%. This payout represents Nordic’s 109th consecutive quarterly dividend.
NAT Shares Up 18% in 2025
After trending lower for the last quarter of 2024 (much like the broader industry), NAT stock has rebounded on political uncertainty, including the recently announced sanctions by the outgoing Biden administration. It is widely expected that President Donald Trump will keep the sanctions and use them as leverage in the war in Ukraine.
Since the start of 2025, NAT has jumped 18%. That said, the stock is still down 26.2% on an annual basis. The outlook for NAT remains solid though.
Why?
Well, there’s more on the horizon for Nordic American Tankers than just sanctions. There is a shortage of Suezmax ships, which is one reason why so many of the company’s customers enter long-term contracts with it. And, remember, Nordic American Tankers only has Suezmaxes in its fleet.
There’s still high demand for oil and a tight supply of ships, an imbalance that could be in play for several years. Despite seasonal variations, Nordic’s management says that the trend supports earnings at higher levels than in the past.
Because of the short supply of Suezmax tankers and low number of new vessels set to enter the global Suezmax fleet, both the short- and long-term outlooks for Nordic American Tankers remain bullish.
Price targets on Nordic American Tankers stock haven’t been updated since late November 2024, so they’re a little out of date, especially in light of the recent sanctions. Still, the analyst consensus is for NAT to climb, on average, 28% over the next 12 months to $3.75 per share. There is a high estimate of $4.00 per share, which would put the stock up more than 36% from current levels.
Again, this guidance should change once analysts update their forecasts.
Chart courtesy of StockCharts.com
The Lowdown on Nordic American Tankers Ltd
Oil and gas midstream company Nordic American Tankers Ltd owns one of the largest fleets of Suezmax tankers in the world, holding long-term contracts with major oil companies.
It bills itself as “a dividend company,” with the objective of having a strong balance sheet and low operating costs, which allow it to distribute free cash flow to its shareholders. And, in a sustained, improved market, like the one we’re entering, shareholders should be on the receiving end of higher dividend payouts…and a higher share price.
That combination is probably why 259 institutions hold a 42.04% stake in NAT. Some of the biggest holders include BlackRock, Inc. (5.63% stake), Morgan Stanley (3.23% stake), and Goldman Sachs Group Inc (2.4% stake).
The company’s near-term and long-term prospects have also resulted in insiders snapping up NAT shares on the open market. In December 2024 alone, Herbjorn Hansson, Nordic’s founder, chairman, and chief executive officer, and his son Alexander Hansson, vice chairman, collectively purchased 794,341 shares. In early January, the vice chairman purchased an additional 300,000 shares. (Source: “Press Releases,” Nordic American Tankers Ltd, last accessed January 14, 2025.)
The Hansson family currently owns 8,550,000 shares, representing the largest private shareholder group in the company. This kind of insider ownership should certainly entice management to deliver strong results going forward.
