Golden Ocean Group Ltd: Bullish 16.7%-Yielder Raises Payout by 70%
Wall Street Says Golden Ocean Stock Could Double
When the economy is running on all cylinders and consumers can’t get enough of what they want and need, it’s a good time to take a look at marine shipping companies like Golden Ocean Group Ltd (NYSE:GOGL). Golden Ocean stock is an excellent marine shipping stock with momentum that Wall Street is bullish on.
Golden Ocean owns and operates a fleet of 99 dry bulk carrier vessels, focusing on the Capesize and Panamax categories. (Source: “Pareto Energy Conference: September 2021,” Golden Ocean Group Ltd, last accessed February 2, 2022.)
Capesize is the largest class of bulkship used to transport coal and iron ore. Because of their size (twice as big as an NFL football field), they cannot pass through the Panama Canal. Instead, they need to travel around the Cape of Good Hope, hence the name “Capesize.” Golden Ocean has 56 Capesize ships, making it the largest owner of this class of vessel.
Capesize ships aren’t cheap to rent, and that cost has been rising fast. In the first quarter of 2021, the daily Capesize time charter equivalent (TCE) rate was $16,611. In the second quarter, it was $33,500, and in the third quarter, it was $38,142. TCE is a measurement used to calculate the average revenue per vessel.
The rest of Golden Ocean Group Ltd’s fleet comprises 40 Panamax (medium-sized ships that can pass through the Panama Canal) and three Ultramax ships.
In the first quarter of 2021, the daily TCE rate for a Panamax or Ultramax vessel was $14,777. In the second quarter, it was $22,900, and in the third quarter, it was $24,733. The breakeven point for a Panamax or Ultramax ship is rent of $8,400 per day.
GOGL Stock Trading at Highest Level Since 2015
As you can see in the chart below, Golden Ocean stock took a beating during the COVID-19 pandemic-fueled sell-off in 2020, tumbling by more than 55%. GOGL stock took a while to get its sea legs back after that. In fact, Golden Ocean Group Ltd’s shares didn’t erase all their losses until February 2021.
Thanks to the recent increase in demand for marine shipping, slowing of global shipping fleet growth, and supply chain constraints, Golden Ocean stock has been on a great trajectory since then. As of this writing, GOGL stock is up by 27%% over the last three months and 138% year-over-year.
Wall Street has issued strong share-price targets for the next 12 months, with an average forecast of $16.50 and a high forecast of $20.00. As of this writing, this points to upside of approximately 65% and 100%, respectively.
Chart courtesy of StockCharts.com
2021 Q3 Financial Results & Q4 Outlook
For the first quarter of 2021, Golden Ocean Group Ltd reported the best first-quarter results in its history. That momentum continued in the second and third quarters.
For the third quarter ended September 30, 2021, Golden Ocean announced that its net income soared by 87% quarter-over-quarter to $195.3 million, or $0.97 per share. Its third-quarter 2021 adjusted earnings came in at $229.7 million, a 76% increase over the second-quarter adjusted earnings of $130.5 million. (Source: “GOGL – Third Quarter 2021 Results,” Golden Ocean Group Ltd, November 24, 2021.)
The company generated TCE revenue of $32,262 per day in the third quarter of 2021. As noted earlier, the daily TCE rates were $38,142 for a Capesize vessel and $24,733 for a Panamax or Ultramax vessel.
Also during the third quarter, Golden Ocean Group Ltd entered agreements to construct seven Kamsarmax vessels. It’s a new type of ship that’s larger than a Panamax but can still travel through the Panama Canal. Because of the ongoing need to increase cargo carrying capacity but maintain length limitations, a Kamsarmax ship has a better economy of scale and return on investment.
Moreover, Golden Ocean sold two older Panamax vessels during the third quarter as part of its fleet renewal strategy. On top of that, the company completed the refinancing of a $413.6-million facility and secured $435.0 million of long-term financing.
For the fourth quarter, Golden Ocean Group Ltd expects to report TCE rates of approximately $41,900 per day contracted for 83% of the available days for Capesize vessels and $27,300 per day contracted for 87% of the available days for Panamax vessels.
The company has already contracted 30% of its open days for the first quarter of 2022. This includes $33,200 per day for Capesize vessels and $24,150 per day for 36% of the available days for Panamax vessels.
“Golden Ocean has maintained significant exposure to the strong freight rate environment throughout the year, resulting in significant cash flow generation. In keeping with the company’s long-standing policy, I am pleased that we are in the position to return value to our shareholders through dividend payments, which have amounted to $321 million thus far in 2021, including the Q3 distribution,” said CEO Ulrik Andersen. (Source: Ibid.)
Management Hikes Quarterly Dividend by 70%
Savvy investors can never turn their backs on an ultra-high-yield dividend stock; the risk/reward trade-off is just too great. Case in point, during the pandemic, Golden Ocean Group Ltd suspended its dividends and only resumed the payouts in June 2021. That was bad news for dividend hogs but good news for the company’s bottom line.
It’s been all uphill since then. In the first quarter of 2021, Golden Ocean stock’s dividend was $0.25 per share. In the second quarter, it jumped by 100% to $0.50. The payout increased by 70% in the third quarter to $0.85 per share, for a yield of 16.7%.
That ultra-high-yield dividend is more than safe. The dividend ratio is just 39.8%, which is way below the 90% threshold I like to see. It gives the company more than enough financial wiggle room to continue hiking its payouts.
The Lowdown on Golden Ocean Group Ltd
I last wrote about Golden Ocean Group Ltd in November 2021, and the reasons I liked GOGL stock back then have only gotten more intense. Because of the company’s focus on larger-class shipping vessels, it has a great ability to take advantage of the improving economy. Golden Ocean expects the global demand for its services to continue growing.
The company’s TCE rates are significantly higher than its breakeven levels, which provides it with a huge, reliable cash flow. This has resulted in Golden Ocean resuming its payouts and increasing its ultra-high dividends for the last three quarters.