LNG carriers are currently in most demand worldwide, because Japan’s nuclear power problems have led it to import large amounts of liquefied natural gas.
You’re therefore not buying at the bottom here, but on the other hand global LNG demand is likely to continue increasing, since it represents a cheap and carbon-efficient fuel for the electric power industry.
In this sector, Teekay LNG Partners (NYSE: TGP) has an attractive 6.2% yield, which is tempting, and its first quarter 2013 income covered its 67.5 cent-quarterly dividend payment.
You should note, however, that the shares are standing at 2.5 times book value, which makes the share price vulnerable to new building by other companies.
The tanker sector has been under pressure recently; and at the other end of the valuation spectrum from TGP is DHT Holdings (NYSE: DHT), an owner of eight double hull crude tankers, whose shares are currently standing at 23% of book value, indicating substantial upside if the company survives.
The company has satisfied its debt maturities until 2016 and has $75 million of cash; its first quarter net loss was $3.1 million. This one’s a matter of risk/reward ratio; the shares are very beaten down and look like good value.
In the bulk carrier area, Safe Bulkers (NYSE: SB) operates a fleet of 25 relatively new dry bulk vessels. It is a relatively low-risk operation with most of the ships out on long-term charters.
It pays a dividend of 5 cents per quarter and yields 3.8%, yet it is trading on only 4.7 times trailing four-quarter income and just below net asset value.
It represents the safety end of the shipping industry, yet with some modest upside potential if rates improve (modest because its ships are on long-term charters).
Finally, Capital Product Partners LP (Nasdaq: CPLP) operates a mixed fleet of tankers and bulk carriers.
It pays a very juicy 10.3% dividend yield, which was covered by net income in the first quarter but not in 2012, and like SB trades just below net asset value.
To a greater extent than SB, it will benefit if bulk shipping rates improve, since around half of its fleet is on spot charter.
For conservative investors, SB looks to be the best bet, while for those seeking high income CPLP is a solid operation. DHT is for the most risk tolerant of you.
Avoid TGP here because it’s a bit expensive, unless you’re very bullish on the global LNG market and think it’s currently undergoing a phase of rapid secular expansion (I’m not convinced yet).
"The tanker sector has been under pressure recently; and at the other end of the valuation spectrum from TGP is DHT Holdings (NYSE: DHT), an owner of eight double hull crude tankers, whose shares are currently standing at 23% of book value, indicating substantial upside if the company survives."
It is alarming that someone would write all these words and not have a clue about what "book value" means in the world of shipping. So WHAT if they have a tanker on their books for $120 million and the share are at 23% of the value the "price paid less depreciation" (which is the way BOOK value is figured)? The ACTUAL value of that tanker is 23% or LESS of what they PAID, if you consider the DEBT still owed on it.
DHT is about where it should be share price wise. Perhaps a bit high. They don't have much revenue. They owe about what the ships are worth and they will NOW start burning through their cash which they only have because of a secondary and a settlement with a bankrupt customer. And when you think about it, DHT wouldn't even exist without OSG who is now in BK.