11.3%-Yielding Nordic American Tankers Stock Up 61% in 2023
November 22, 2023
Why NAT Stock Has 35% Upside
What’s a perfect income stock? One that pays reliable, high-yield distributions and has a share price that’s set to rally. It’s a rare combination. More often than not, a stock’s dividend yield is high because its price has cratered.
Nordic American Tankers Ltd (NYSE:NAT) is in a sweet spot right now. Nordic American Tankers stock’s price has been ripping higher, it has 35% upside potential over the next year, and industry dynamics point to far bigger gains over the next three years.
As for NAT stock’s dividends, this is what the company said in a recent press release: “We call ourselves a ‘Dividend Company.’ All our actions have a main goal: To maximize dividend.” (Source: “A Dividend Company,” Nordic American Tankers Ltd, October 25, 2023.)
That press release also said the company “is in an excellent position.” Its recent time charter equivalent (TCE) rates (all to major oil companies) were in the range of $40,000 to $70,000 per day. Meanwhile, its operating costs were approximately $9,000 per day. You can’t ask for much more than that from a company.
Nordic American Tankers is a marine shipping company that acquires and charters double-hull tankers in Bermuda and internationally. It currently operates a fleet of 19 Suezmax crude oil tankers, which is one of the biggest Suezmax fleets on the planet. (Source: “History,” Nordic American Tankers Ltd, last accessed November 16, 2023.)
Suezmax vessels are medium-sized oil tankers, about 900 feet long. They’re the largest ships that can travel through the Suez Canal. They have cargo capacity in the range of 120,000 to 200,000 deadweight tonnage (dwt), meaning they can carry between 800,000 barrels and more than one million barrels of oil.
Suezmax tankers are primarily used on long-haul routes, such as from Saudi Arabia to the U.S.
Current State of the Oil Tanker Industry
With fears of a recession still looming, you might not think now would be the time to focus on marine shipping stocks like Nordic American Tankers stock. If the demand for commodities and products isn’t there, shipping companies’ earnings would be expected to fall.
But there are a couple of reasons why investors should keep Nordic American Tankers Ltd on their radar.
First, although oil prices are currently down from their March 2022 highs of $130.00 per barrel to about $76.00 per barrel, they could average $120.00 per barrel in 2024 and $100.00 per barrel in 2025. That’s because of ongoing supply cuts by the Organization of the Petroleum Exporting Countries Plus (OPEC+). (Source: “Oil Price Shock Would Hit 2024 Growth and Boost Inflation,” Fitch Ratings, Inc., November 10, 2023.)
Second, there’s a global scarcity of Suezmax tankers at the same time the demand for them is high. The total worldwide Suezmax fleet is hovering around 577 vessels. Only one new Suezmax vessel was expected to be added to the global fleet in 2023, and only six new Suezmax vessels are expected to be added in 2024. (Source: “The Market Is Good for Our Ships,” Nordic American Tankers Ltd, September 29, 2023.)
Despite a traditional low season and oil production cuts by OPEC+, Nordic American Tankers’ third-quarter TCE earnings were 50% above their average for the past 10 years.
Why don’t shipping companies just order more Suezmax tankers? The available shipyard capacity has, to a large extent, already been booked for container, gas, and dry bulk ships, leaving little capacity to build Suezmax tankers until at least 2026.
According to Nordic American Tankers Ltd, “the supply of tankers is inelastic in the short term. But this time it looks like short term is here for longer.” (Source: Ibid.)
This situation should keep the balance in favor of Nordic American Tankers for several more years.
Revenues & Net Income Surged in First Half of 2023
Nordic American Tankers Ltd has been having a blockbuster year.
The company’s net voyage revenues in the second quarter of 2023 increased by 95% year-over-year to $67.8 million. Its revenues in the first half of this year increased by 408% year-over-year to $154.89 million. (Source: “Nordic American Tankers Limited (NYSE: NAT) – Report June 30, 2023 – First Half 2023,” Nordic American Tankers Ltd, August 28, 2023.)
Nordic American Tankers reported second-quarter 2023 net income of $26.8 million, or $0.13 per share, up from a second-quarter 2022 net loss of $4.0 million, or $0.02 per share. Its net income in the first half of this year was $73.72 million, or $0.35 per share, up from a loss of $30.95 million, or $0.16 per share, in the first half of 2022.
The average daily TCE rate for Nordic American Tankers Ltd’s 15 spot vessels during the second quarter was $43,200 per vessel.
Including its four ships that are on term contracts, the company’s total average daily TCE rate in the second quarter was $39,300 per vessel. That’s up by 95.72% from $20,080 in the second quarter of last year. It also represents one of the highest second-quarter average daily TCE rates in the company’s 28-year history.
Moreover, Nordic American Tankers Ltd has one of the lowest debt levels among publicly listed tanker companies. As of June 30, its net debt was $159.8 million, or $8.4 million per ship (based on 19 ships). The company has stated, quite wisely, that its objective “clearly remains to become free of debt.” (Source: Ibid.)
105th Consecutive Quarterly Dividend
Nordic American Tankers has been living up to its self-description as a “dividend company.”
In the third quarter, the company paid dividends of $0.13 per share, up from $0.03 per share in the same quarter of last year. This worked out to a yield of 11.28%. That’s more than triple the current U.S. inflation rate of 3.2%. (Source: “Dividends,” Nordic American Tankers Ltd, last accessed November 16, 2023.)
Are higher payouts coming? It certainly looks like it. In Nordic American Tankers’ second-quarter earnings press release, management noted, “higher earnings will result in higher dividends.” (Source: Nordic American Tankers Ltd, August 28, 2023, op. cit.)
Thanks to the company’s terrific financial results and robust outlook, NAT stock continues to outpace the broader market, up by 61% year-to-date and 53% year-over-year (as of this writing). Furthermore, Nordic American Tankers stock has gone up by about 24% since I last wrote about the company, which was in early June.
Despite those market-crushing gains, NAT stock still has plenty of room to run. Wall Street analysts have provided a 12-month share-price estimate in the range of $5.55 to $6.00, which points to potential gains in the range of 25% to 35%.
Chart courtesy of StockCharts.com
The Lowdown on Nordic American Tankers Stock
As mentioned earlier, Nordic American Tankers Ltd owns one of the largest fleets of Suezmax tankers in the world. It has a solid balance sheet, a record of impressive earnings growth, and a bullish outlook.
Oil demand continues to be strong and high interest rates have kept oil inventories low. That’s a tough combination for consumers as we head into winter.
The tight supply and high price of oil, the scarcity of Suezmax ships, and various geopolitical tensions (including the Russia/Ukraine and Israel/Palestine wars) have set up interesting dynamics for Nordic American Tankers Ltd over the short and long terms.
