Picture supply: Getty Photos
Nordic American Tankers (NYSE:NAT) is a dividend inventory I’ve spoken about earlier than. It’s one thing of a hidden gem for UK traders. The Bermuda-headquartered firm runs a fleet of Suezmax tankers and at the moment affords a mega 10.7% dividend yield.
What’s with my optimism?
Placing the massive dividend to 1 aspect, Nordic American Tankers is working in a booming sector. Analysts had been warning for years that the sector wasn’t constructing sufficient new vessels, they usually have been proper.
At present, the worldwide tanker fleet is the oldest it’s been in dwelling reminiscence, and there are simply two new supertankers getting into service in 2024 — that’s 90% decrease than the common this millennium.
Bear in mind, previous vessels can’t function on prime contracts. Large vitality corporations like Exxon and Vitol don’t use clapped-out Soviet tankers to move their beneficial merchandise. This implies well-prepared corporations, particularly these with loads of vessels beneath 15-years-old, are completely positioned to profit.
Purple Sea turmoil
What’s extra, there’s bother within the Purple Sea, one of many world’s most necessary delivery lanes. Because of Houthi assaults, roughly 90% of Purple Sea delivery is being diverted round South Africa.
In line with legendary investor J Mintzmyer, this rerouting “provides 40% to that key Asia to Europe route, it provides 60% to 70% to Asia-Mediterranean trades“. That is consuming up any spare tanker capability and has been pushing leasing charges sky-high on affected routes.
Because the title suggests, Nordic American’s tankers are the most important vessels that may match via the Suez Canal — Suezmax. And meaning they’re in demand. The spot fee for leasing a Suezmax tanker has tripled over two years.
What’s occurring subsequent week?
Nordic American is because of report its Q1 2024 earnings subsequent week — 29 Could pre-market (US time). This implies we’ll have the ability to see how properly the corporate is performing.
Analysts predict the corporate to announce earnings per share of 11¢ and revenues of $66.19m. Within the final quarter, the tanker inventory reported earnings per share of 8¢ per share and revenues of $59.25m. So, we’re a ten% enhance in income.
Am I being too optimistic?
It’s not an ideal science, however leasing charges for Suezmax tankers remained robust all through Q1. I don’t have the precise information, however long-run contracts appeared to working at a premium in Q1 in contrast with This fall, and spot charges remained elevated. The full common time constitution equal (TCE) achieved by Nordic in This fall was $39,170 per day per ship.
It’s additionally price noting that friends like Scorpio Tankers, which I’ve been bullish on, additionally outperformed expectations in Q1. The bigger tanker firm highlighted greater TCE income in Q1 of 2024 versus This fall of 2023.
Nonetheless, it’s additionally price recognising that the corporate’s personal steering is extraordinarily necessary. Nordic’s administration was cautious about how lengthy these elevated costs would final. Ought to the Purple Sea assaults cease, I’d additionally anticipate to see charges lower within the quick time period. Lengthy-term provide and demand imbalances stay.
