Ship Finance International Limited (NYSE:SFL): Cash Cow Yielding 14.2%
Earn a 14.2% Yield From This Dividend Stock
Today’s chart highlights “cash cows,” my favorite place to find high-yield dividend stocks.
Cash cows represent mature businesses. Because they don’t have to reinvest earnings back into operations for expansion, most of their profits get returned to shareholders. As a result, some of these names pay out yields ranging from 10% to 12%, to even 15%.
Case in point: Ship Finance International Limited (NYSE:SFL). The company buys vessels and other marine assets and then leases them out to customers. If you need a steady income, this name should top your watchlist for a couple of reasons.
For starters, you have cash flow. A new ship can cost quite a bit upfront. But once you own one, they’re actually not that expensive to maintain.
Furthermore, customers cover most of the operational expenses. Costs, as a result, come in at only a fraction of sales. This leaves lots of money left over for acquisitions, stock buybacks, or big, oversized dividends.
You can see how lucrative this business gets in the company’s financial results. Ship Finance clears $0.34 in operating profits for every dollar made in revenue. Only a handful of businesses in the world can match these kinds of profit numbers.
It also has a highly visible stream of earnings. The shipping business has big ups and downs. And worse, many companies leverage themselves right to the edge, trying to squeeze out a couple extra points of return.
Ship Finance, in contrast to its peers, runs a conservative shop. In addition to a light debt load, management keeps lot of cash on the balance sheet. This provides the company with a big war chest to buy up wonderful assets on the cheap.
Management charters out its vessels for long periods in advance, locking in contracts for decades. Today, the average length of one of these lease agreements tops nine years. This means the company’s profits are so predictable, shareholders can circle the dates on a calendar as to when they’ll get paid. (Source: “Ship Finance International Limited Q1 2017 Results,” Ship Finance International Limited, May 30, 2017.)
For investors, this translates into a tidy income stream. Today, the stock pays a quarterly distribution of $0.45 per share. That comes out to an annual yield of 14.2%.
Of course, whenever you see a double-digit yield, alarm bells should go off. That said, Ship Finance generates more than enough income to maintain this distribution. The company’s light debt load and hearty cash pile gives it additional wiggle room.
Chart courtesy of StockCharts.com
Bottom line: Cash cows won’t knock your socks off. But if you like regular income, you’ll like these names just fine.
If you want to beat low interest rates, take a second look at Ship Finance International Limited. This operation can be milked for steady, ongoing income. And with a yield in the mid-teens, it beats the pants off of keeping money in the bank.