No doubt the rates have jumped up FAST. What drove them up and more important will whatever that was keep them above breakeven for NAT? What is the break even rate for NAT would be the first thing to know.
How much debt does NAT carry today compared to the gravy years? How many vessels are left in the fleet?
Investing today because of high rates is tempting but do you really expect the rates to stay up and if not how low? Does half today rates make NAT a rising stock or level at around 10 bucks? Cash flow has to increase to raise the dividend given the balance sheet and by how much? Debt service?
Does a rate of 25000 a day make current dividend safe?
Anyone can see if rates stay at or near where they are today that a year from now the dividend and stock price both will be higher but what are the odds of that hapening so what is lower but enough to move this stock up in price and at least stay around 7% dividend return?
Be careful on how you do your math. Remember the break even of $12,000 doesn't change when the tanker rates go up.
So, lets say the rates have been $15,000/day for 2013. In 2014 the rates average $25,000/day. That means in 2013 they profited $3,000 per day, but in 2014 they profited $13,000 per day: that's an increase of net profit of 433%. Since they payout most of their profits in dividend and have minimal amount of debt I would assume they could payout bigger dividends, buy back shares or buy more vessels.
Best case I think they could easily pay up to a $0.90 qrtly dividend (they've done that in the past) with the amount of vessels they have and the investment into NAO; plus all their ships are in great shape. That's $36/share and a 10% dividend assuming rates stay up. Huge if.
I can't tell you if these rates will last or where they will go. I doubt anyone can. What I can tell you is that NAT breaks even at a rate of $12,000 per day per ship. This translates into a rule of thumb that for every $1,000 NAT earns above the break-even rate, it can pay a dividend of about 2.4 cents. So a $25,000 average rate would imply a quarterly dividend of 13 x 0.024 = 0.31, about twice what it has been paying (and by the way, hasn't been earning).
I ran the present dividend at .16 a quarter x 4 = .64 cent divy a year = approx. 6.6% at todays closing price of 9.54 so assuming your .31 x4 to get 6.6% or so the share price would have to go to around 18 bucks a share to get a 6.6% present divvy if the market sets the price that high.....just saying do your own dd just my opinion. Please let me know if I calculated this wrong. Thanks GLTA
I looked up the info on Nat based on their webb site and from what they have posted the year 2013 will be a worse financial year for them than 2012. They have 20 suzemax vessels and you are correct that the break even is 12.000 a day. They do seem to be working to cut expense more in 2014 with most of vessel maintance being done as required in 2013. Looking at the historical chart of rates the "mean rate" seems to be between 20-25 a day so the 25 a day seems very good if it could be maintained given the overall conditions of the market. You are also correct that the cash flow in the past did not support the dividend and that should be factored into any "expected" dividend with even a 25,000 rate. So if they increase the dividend to twice what it is today that would be a rate above earnings? But lets say they do double the dividend at a 25,000 a day rate the price of the stock would go up some to reflect the increase in % of return but I doubt double. My guess would be between 10-11 bucks.
This stock looks to be a risk for a gain on stock price and dividend IF rates hold at least at 25,000.