Nordic American Tankers (NAT, Financial) is a tanker company, engaged in acquiring and chartering double-hull tankers. As of 2Q15, the company had a fleet of 26 vessels with 22 vessels being currently operational. Nordic American Tankers has witnessed strong stock upside in YTD15 and the stock has surged by 43.5%. However, the rally is not over for the stock and this article discusses the key reasons to remain bullish.
Before I discuss the company’s fundamentals and growth factors, I want to mention here that Nordic American Tankers currently offers a dividend payout of $1.4 per share, and this translates into a dividend yield of 10.95% considering current stock price of $14.45 per share. This dividend yield will sustain, and this article will go into the reasons. The important point is that Nordic American Tankers is an excellent dividend stock to own with a medium-term perspective.
AS for the reasons to be bullish on Nordic American Tankers, it is important to understand that robust spot rates for tankers has been the sole factor for strong results and rally in the stock. Strong spot market rates have been fueled by low oil prices as it has created demand for oil storage and creation of strategic reserves by a few countries.
Therefore, as long as oil prices remain sideways to lower, I believe that spot markets will remain robust. In my view, oil is likely to trend marginally higher in 2016, and this will ensure that attractive spot rates help Nordic American Tankers deliver strong results and continued dividends.
For 2Q15, Nordic American Tankers reported that tanker rates averaged $38,000 per vessel per day compared to $37,000 per vessel per day in 1Q15. Even for 3Q15, the company expects tanker rates to be in line with 2Q15, and this will ensure strong cash flows. For 1H15, Nordic American Tankers reported operating cash flow of $94.2 million as compared to $16.1 million in 1H14. Therefore, cash flow growth has been stellar, and this explains the surge in the stock in YTD15.
For 2016, there should be no further surge in spot rates, but they will remain around current levels. Even if the spot rate for 2016 ranges $30,000 to $35,000 per vessel per day, Nordic American Tankers will be well positioned to generate solid cash flows and pay the current levels of dividends. This will help the stock trend higher.
From a balance sheet perspective, Nordic American Tankers has debt of $250 million as of 2Q15 and cash of $105 million for the same period. Net debt of just $145 million provides the company with robust financial flexibility and ensures that the company’s fundamentals remain sound. Low debt is another reason to believe that the company’s dividend payment will remain robust.
As a result of strong cash flows and high financial flexibility, Nordic American Tankers has been aggressive on the new vessel acquisition front. On July 27, the company acquired two Suezmax tankers and the company has two new vessels for delivery in 2016 and 2017. The company expects no equity dilution for these vessel acquisitions that will provide further boost to the company’s cash flow.
The company’s stock was trading at a high of $17.27 on July 21, and the stock has subsequently declined to current levels of $14.45. This correction is a good buying opportunity, and the management recently stated in a letter to shareholders that 3Q15 outlook remains robust. Therefore, there are no major concerns in the medium-term.
In conclusion, this 10.95% dividend yield stock is worth holding and there is more juice in the rally. Investors can consider buying this stock at current levels, and I expect renewed rally as 3Q15 results are declared.
