Why a unique business model supporting high dividend growth

Market Realist

Must-know: An overview of Nordic American Tankers (Part 2 of 6)

(Continued from Part 1)

Nordic’s unique business model

Nordic American Tankers (NAT) believes that differentiating from other shipping companies, it has an operating model that’s sustainable in both a weak and a strong tanker market. The company aims to meet its both goals of shareholders dividend payments and the need to expand fleet under advantageous conditions. NAT maximizes its cash flows by employing all of its vessels in the spot market through the Orion pool which increases the efficiency and utilization of the fleet. The spot market gives better earnings than the time charter market over time.

NAT pays its dividend from cash on hand, with cash break-even level of ~$12,000 per day per vessel. The cash break-even rate is the amount of average daily revenue the vessels would need to earn in the spot tanker market in order to cover the vessel operating expenses, cash general and administrative expenses, interest expense, and all other cash charges.

Dividend policy

The company’s policy is to declare a regular quarterly dividend to its shareholders. Since the 4Q97, NAT has a long history of consistent dividend payment until recently—the 2Q14. The company’s dividend policy enables it to achieve competitive, risk adjusted cash yield over time as compared to the other tanker companies like DHT Holdings Inc. (or DHT), Teekay Tankers Ltd. (TNK), Navios Maritime Acquisition (NNA), and Tsakos Energy Navigation Ltd. (TNP). The Guggenheim Shipping ETF (SEA) tracks the shipping companies.

The dividend to the shareholders could be higher than the operating cash flow or lower than the operating cash flow after excluding reserves as the Board of Directors may from time to time determine are required. Also, it would take into account contingent liabilities, the terms of NAT Credit Facility, other cash needs, and the requirements of Bermuda law.

Recent dividend payment

In July, the NAT Board of Directors declared a dividend of $0.12 per common share to shareholders as of record July 25, 2014, scheduled for payment on or about August 12, 2014.

Meanwhile, as earlier notified, NAT shareholders who have NAT shares above certain threshold—at least 500 common shares—will be awarded dividend-in-kind shares in Nordic American Offshore (or NAO). The record date for the distribution of these shares is July 25, 2014. It’s expected to be effective as of August 11, 2014. Based on current calculation on NAO latest stock closing price and its common share dividend of $0.13 per share, value of the dividend-in-kind stands at $0.17 per share.

Outlook

Looking ahead, NAT seeks to increase its dividend and earnings capacity through further expansion when the time is right. Also, it believes that strong balance sheet and well defined and transparent operating model gives NAT a strong competitive position.

Let’s look into the details of how NAO and its synergy with NAT is beneficial.

Continue to Part 3

Browse this series on Market Realist:

Rates

View Comments (0)