Torm Stock: 15.5%-Yielder Hits All-Time Record High
July 3, 2024
Torm PLC Hikes Quarterly Distribution to $1.50 Per Share
It’s tough to find ultra-high-yield dividend stocks with consistent, long-term industry tailwinds. Energy stocks might be bullish, but their earnings are dependent on where we are in the economic cycle. Right now though, the near-term outlook for oil and gas midstream stocks like Torm stock is robust.
When it comes to midstream stocks, most investors think of oil and gas pipelines, but midstream companies also include shipping stocks.
And the oil and gas transportation market is firing on all cylinders. Between 2023 and 2028, the oil and gas transportation market is projected to increase at a compound annual growth rate of 5.63%. (Source: “Oil and Gas Transportation Market Analysis APAC, North America, Middle East and Africa, Europe, South America – US, Saudi Arabia, China, India, Russia – Size and Forecast 2024-2028,” Technavio, last accessed June 26, 2024.)
The industry’s strong compound annual growth rate (CAGR) is being juiced by high freight rates, strong global demand for oil and oil products, production cuts from the Organization of the Petroleum Exporting Countries and allies (OPEC+), and ongoing geopolitical tensions in the Middle East. So, tanker companies such as Torm PLC (NASDAQ:TRMD) are taking full advantage of these favorable market conditions.
Shipping stocks have rallied to new highs, but their performance over the long run has been even more impressive. Midstream shipping company stocks have been hitting not only new 52-week highs, but also all-time record highs.
About Torm Stock
Torm plc is a leading pure-play product tanker company with a fleet of 89 vessels designed to be configured to move gasoline, naphtha (a flammable liquid hydrocarbon mixture), diesel, and jet fuel from refiners to their customers. (Source: “About,” Torm plc, last accessed June 26, 2024.)
Ranging in size from 45,000 to 115,000 dead weight tonnage, the company’s fleet includes Long Range 1, Long Range 2, and Medium Range vessel classes.
Long Range 1 tankers are designed to carry both refined products and crude oil. Long Range 2 tankers are generally used on long trade routes, such as carrying diesel from the eastern hemisphere into the Atlantic. A typical trade for Medium Range vessels would be shipping gasoline from Europe to the U.S.
Strong Performance Extends into 2024
Thanks to favorable market conditions, Torm ended 2023 strongly, setting new earnings records. That momentum has continued into 2024, with another quarter of strong results and the timely delivery of vessels acquired in 2023.
For the first quarter ended March 31, 2024, Torm’s time charter equivalent (TCE) earnings increased 25% year over year to $330.7 million. TCE rates per day climbed 3.5% to $43,152. Thanks to the arrival of new vessels, the available earnings per day increased to 7,697 from 6,732 in the same period last year. (Source: “TORM plc Q1 2024 results, dividend distribution, and financial outlook 2024,” Torm plc, May 8, 2024.)
The company’s first-quarter earnings before interest, taxes, depreciation, and amortization (EBITDA) advanced to $265.8 million, while net profit jumped to $209.2 million, or $2.34 per share.
Management noted that the product tanker market remains robust, but freight rates had fallen at the end of the quarter compared to the high levels at the start of the year.
That said, the overall market remains strong, with continued high ton-mile demand due to geopolitical tensions and refinery dislocation affecting shipping routes and adding to voyage distance.
Moreover, product tanker growth remains relatively low, supporting the positive supply and demand metrics.
2024 Outlook
Looking ahead, based on strong first-quarter earnings and coverage achieved in the second quarter, Torm increased the low end of its guidance range. It now expects 2024 TCE earnings to be in the range of $1.1 billion to $1.35 billion, up from previous guidance of $1.0 billion to $1.35 billion. In 2023, Torm reported TCE earnings of $1.08 billion.
EBITDA are expected to be in the range of $800.0 million to $1.02 billion, up from previous guidance of $700.0 million to $1.05 billion. The company reported full-year 2023 EBITDA of $848.0 million.
Increases Quarterly Distribution to $1.50 Per Share
Thanks to its strong cash generation, Torm stock is able to provide investors with a big variable distribution. In May, Torm plc declared a dividend of $1.50 per share, or $5.82 on an annual basis, for a forward dividend yield of 15.5%. (Source: “TRMD / Dividend History,” Nasdaq, last accessed June 26, 2024.)
Because Torm stock’s dividend is tied to profitability, it will fluctuate from quarter to quarter. In the prior quarter, the company paid out $1.36 per year; in May 2023, the distribution was $1.46.
Torm had the misfortune of announcing its dividend policy during the opening days of COVID-19. Suffice it to say, the financial windfall did not last long, with the board suspending the payout for two years. The company resumed dividends though, in the back half of 2022, and it hasn’t missed a payment since.
TRMD Stock Hits Record High
A frothy, ultra-high dividend yield of 15.5% would typically be associated with a share price that is depressed. But that isn’t the case with this company; Torm stock is on fire, having hit a new all-time record high of $38.85 on June 26, 2024. (Source: “Torm Plc (TRMD),” StockCharts, last accessed June 26, 2024.)
As of this writing, TRMD stock is trading hands at $38.35, which puts it up 37% year to date and 102% year over year.
The outlook for Torm stock remains solid, with analysts providing a 12-month average forecast of $44.00 per share, which points to potential gains of approximately 15%. Wall Street is, of course, notoriously conservative.
Chart courtesy of StockCharts.com
The Lowdown on Torm Stock
Torm plc is a pure-play product tanker company that continues to report strong financial results. It recently increased its quarterly distribution and, thanks to industry tailwinds, narrowed the low end of its 2024 guidance range for TCE earnings and EBITDA.
Thanks to its growing fleet, rising freight costs, and crude cargo growth, the outlook for Torm plc and its dividend remains excellent.
