...Three companies risking a burnout
These three companies have paid out more in dividends than they took in as free cash flow (or were free cash flow-negative) over the past three years:
Net Income Payout Ratio, 2008
Free Cash Flow Payout Ratio, 2008
Total 3-Year Shortfall*
Primary Funding Method
American Capital (Nasdaq: ACAS)
Issue shares and debt, sell assets
Nordic American Tanker
.....Could they be right or are they just fools ?
If nat had financed all new ships, then the price per share would be less and the dividend would be less because of high interest expense. Net income would also be less. Without being able to obtain new financing they would not be able to buy any new ships. Also the break even would be be between $25,000 and $28,000 per day per ship. Sounds like you want the business model that FRO has. No thanks. Maybe you would be happier buying FRO.
Please append 2008 Annual statement to the end of Sources/References, behind 'and'.
As a side note I'd like to recommend that everyone here check out www.tonmiletrader.com. It's a blog run by Mike, who has posted here. He is very knowledgeable and is actually working in the shipping industry. He's too humble to plug his site so I let everyone here in on a great source of information.
Sources: NAT 1Q09 quarterly statement, 5/15 press release, and
NAT during 1Q09: 13 ships, 37.4M shares, each share is 3.47e-7 ships worth of revenue, profit, earning, and dividend.
After 5/15: 14 ships, 42.2M shares, each share is 3.32e-7 ships worth of revenue, profit, earning, and dividend.
It does not matter what the spot rate is because each share owns "less" ships than it did before. This is because $130M was netted but only 57M was used to buy 1 ship. If the rest of the money was used, then we'd actually have slightly higher ownership at 3.55e-7 ships per share. Until then each share has increased book value but decreased EPS and consequently dividend.
Why? Because people who bought into the offering could've formed their own company of buying 2 ships with the $130M from the 4.225M share offering. Each share of that company would've been worth 4.73e-7 ships, meaning they would've had higher dividend than if they bought into NAT's offering.
The gist of my message is that NAT using secondaries to "expand" is of marginal benefit for current shareholders and detrimental for secondary subscribers. However it does benefit Scandic American Shipping (NAT's manager, owned by HH), because with each secondary offering, Scandic gets more shares so its ownership of NAT is maintained at 2%. As far as I can see it, HH is the true direct beneficiary of secondary offerings. Nobody bothered to make me whole after each offering.
Had NAT took out loans and bought ships to fix on long-term charters (to hedge away spot mkt risk) I'd agree wholeheartedly that dividend will go up.
ginchuang You are also incorrect about that more new ships don't increase dividends. More new ships creates more revenue as long as spot rates stay above $10,000 a day, dividends should increase.
your analysis is lacking the fact that new ships are amortized over their life expectancy , which more than offsets share dilution. Share price has remained within a constant range even with new shares being issued. I still feel nats dividend will be closer to $.60 than $.40, time will tell. One other point, share dilution in nats case may cause the share price not to go above $37 or $38 in the near term.
Motley Fools are no better than any other stock picking newsletter, even though they try their best to not look like one. Investors would be better served to go through quarterly statements themselves and conduct due diligence. To my knowledge NAT does not pay dividend exceeding its cash flow, and I question the author's calculations.