They will do what they have done in the past. Use cash on hand to cover a dividend that wasn't earned during the quarter, then at some point issue new shares to raise more cash. It's managements strategy for survival as we wait for tanker rates to increase and stabilize at a profitable level. The greatest pain this causes is dilution of common share value.
The dividend is a drain on cash. Rates have ranged between $9K - $22K this quarter, spending more time at the bottom end of the range. If we assume $14K/day and 85% utilization, that is about $11.9K/day...about the same as costs...meaning no cash flow on the tanker side this quarter. Add $2 million (rounded) for the NAO dividend, and you have $2 million in cash flow. The dividend declared last quarter was $20.5 million, so they look to be -$18.5 million in cash flow for the quarter, by my numbers.
I'm not as bullish on the tanker sector as many here. Utilization should go up because of the lack of new supply, but the market is still very oversupplied, and it will take time for demand to catch up to supply. I expect rates to stay down until winter...probably staying in the $10 - $20K range. Once we get to winter, it's anybody's guess.
I think they will cut the cash dividend, but will probably issue more NAO dividends to keep the headline number up. From the response Bill got from the company, it looks like they are going to set a record date for the NAO dividend announced in the first quarter at the same time as the third quarter payout. It wouldn't surprise me if the NAO dividend from Q1 gets added into the Q3 dividend headline number as well. Cash dividend probably gets cut...they can't afford too many quarters of $18 million shortfalls. Herb is so good at spinning bad news that it may not affect the stock much, or the stock may even go up. But given what is actually going on in the markets (which is very different than what the posts on this board seem to be implying), its hard to see them maintaining the cash dividend at current levels.
NAT is adding two more ships which means more revenue. Looking forward to third and 4th quarter I am expecting rates to move higher given the increased oil demand and increased oil prices. The 2nd quarter results are already backed in the price of NAT. Holders of NAT will get shares in NAO and get NAO dividend going forward. Also will get NAT dividend. I think can easily make a run to the $10 to $12 range. It already broke $9 and moved up to $9.20. News from NAT on dividend is coming and we should hear news on the adding of the two new ships when delivered in August. I hope CEO will add one more ship soon. So further news is coming which should help share price to move higher.