9.9%-Yielding DHT Holdings Stock Pays 54th Consecutive Quarterly Dividend
Undervalued DHT Stock Has High Potential
Thanks to record-high demand, crude oil prices could hit an intra-quarter high of $100.00 per barrel in the fourth quarter of this year. This, coupled with a shortage of very large crude carriers (VLCCs)—not a single VLCC will be delivered in 2024—should result in exceptionally high long-haul rates and record-high VLCC profits in 2024 and 2025.
Those are perfect industry tailwinds for DHT Holdings Inc (NYSE:DHT), an independent crude oil tanker company with an international fleet of 24 VLCCs. (Source: “Investor Presentation Second Quarter 2023 Results,” DHT Holdings Inc, August 9, 2023.)
Each of these ocean behemoths can transport 2.0 million barrels of oil.
DHT Holdings operates through integrated management companies in Monaco, Norway, and Singapore. Webber Research Advisory‘s 2023 ESG Scorecard ranked the company No. 6 out of 64 shipping conglomerates and No. 1 among all crude oil tanker companies. (Source: “DHT Holdings, Inc. Second Quarter 2023 Results,” DHT Holdings Inc, August 7, 2023.).
Not surprisingly, DHT Holdings stock took a hit in the early part of 2020 as the COVID-19 pandemic shuttered much of the global economy. But that period wasn’t all that bad for owners of crude oil supertankers. Oil was still being pumped from the ground and needed to be shipped and stored.
In March 2020, VLCCs were earning an eyewatering $279,259 per day; that’s their second-highest level since 1990. Instead of transporting and unloading crude oil over a set period, VLCCs were being used as floating storage tanks, sitting idle day after day. (Source: “Not-So Supertankers Deserve a Look as Pandemic Fades,” The Wall Street Journal, March 15, 2021.)
While time charter equivalent (TCE) rates (the daily earnings or losses for ship owners) fluctuated a lot during the pandemic, they’ve since moderated. Now, they’re expected to increase in 2024 and 2025.
Q2 Shipping Revenues Up 53% YOY; TCE Rates Up 131%
For the second quarter ended June 30, DHT Holdings announced that its shipping revenues increased by 15.5% sequentially and 53% year-over-year to $152.0 million. Its adjusted net revenues grew by 20% quarter-over-quarter and 108% year-over-year to $112.9 million. (Source: DHT Holdings Inc, August 7, 2023, op. cit.)
The company reported second-quarter net income of $57.0 million, or $0.35 per share. That’s compared to $38.0 million, or $0.23 per share, in the prior quarter and $10.0 million, or $0.06 per share, in the second quarter of last year. Its 2023 second-quarter adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) were $89.9 million, up by 25% on a quarterly basis and 176% on an annual basis.
For the second quarter of this year, DHT Holdings Inc reported a combined TCE rate of $56,300 per day. That’s up significantly from $24,300 per day in the second quarter of 2022. The 2023 second-quarter rates comprised $36,200 per day for the company’s VLCCs operating based on time charters and $64,800 per day for its VLCCs operating in the spot market.
TCE rates are only meaningful when they’re tied to a shipping company’s break-even rate. There’s no point in bragging about a $200,000-per-day TCE rate if the break-even rate is $225,000 per day. Fortunately, DHT Holdings has break-even rates of $19,200 for time charters and $15,400 for the spot market. (Source: DHT Holdings Inc, August 9, 2023, op. cit.)
Management Hiked Dividend to $0.35/Share
DHT Holdings’ quarterly dividend fluctuates based on the company’s TCE rates and earnings. During the pandemic, DHT stock’s distribution increased dramatically, but it came down to Earth in 2021 and 2022. Dividend hogs might not have liked to see the payout slip, but it’s important to remember that, during the worst economic crisis in 100 years, DHT Holdings Inc didn’t suspend its dividends.
Record-high oil consumption, record-high oil demand, and high TCE rates have been helping juice DHT Holdings stock’s dividend again. In the second quarter of 2023, the company declared a dividend of $0.35 per share, for a yield of 9.9%. (Source: “Dividend Information,” DHT Holdings Inc, last accessed August 23, 2023)
That marked DHT Holdings Inc’s 54th consecutive quarterly cash dividend, and the amount was in line with the company’s capital allocation policy to pay out 100% of its net income. The $0.35 quarterly dividend also represents a huge increase over DHT stock’s first-quarter dividend of $0.23 per share and an even bigger increase over its 2022 second-quarter dividend of $0.04 per share.
In addition to its high-yield dividends, DHT Holdings Inc returns value to its shareholders in the form of share buybacks. In the second quarter, the company purchased 1,072,344 of its own shares on the open market for an aggregate consideration of $8.9 million, at an average price of $8.25 per share. All of the shares were retired.
DHT Holdings Stock Up 20% in 2023 & Has 75% Upside
I’ve been following DHT stock for a while now. The last time I wrote about DHT Holdings stock, which was in 2021, it was trading at $5.06 (price adjusted for dividends, etc.). This past March, shares of DHT Holdings Inc hit an intra-day high of $11.38 (their highest trading range since 2011), for a 2.5-year gain of 125%.
DHT stock has been doing well over the last couple of years. As of this writing, it’s up by:
- 107% since the start of 2022
- 23% over the last three months
- 21% year-to-date
- 37% year-over-year
Wall Street analysts think shares of DHT Holdings Inc have more room to run. Their 12-month median forecast for DHT Holdings stock is $12.50 per share and their high forecast is $17.00 per share. This points to potential gains in the range of approximately 29% to 75%.
Chart courtesy of StockCharts.com
The Lowdown on DHT Holdings Inc
As mentioned earlier, DHT Holdings is a leading independent crude oil tanker company.
It’s a financially robust company that has been expanding its shipping fleet and taking full advantage of strong industry tailwinds. DHT Holdings Inc reported excellent second-quarter financial results, its stock price has been thumping the broader market, and it recently increased its high-yield dividend for the 54th consecutive quarter.