Nordic American Tankers (NAT, Financial) is a tanker company that is involved in the acquisition and chartering of double-hull tankers. As of December 31, 2014, the company had 24 Suezmax crude oil tankers that were operational in the global markets. At a current stock price of $12.02 per share, Nordic American Tankers offers a dividend of $0.88 per share and a healthy dividend yield of 7.2%. This article discusses the reasons to be bullish on the stock and why the high dividend payout is likely to sustain.
The most important point related to Nordic American Tankers and the bullish view on the stock is lower oil prices. With oil prices remaining low, the demand for crude oil tankers has surged and this has translated into higher day rates for tankers. The reason is because China has been creating strategic crude oil reserves by taking benefit of lower oil prices, and this has increased the demand for the tankers. It is therefore important to understand that tanker day rates are likely to remain robust as long as oil prices remain low.
With oil supplies remaining high, global economic growth remaining sluggish and with the prospects of oil supply from Iran, it is entirely likely that oil prices will remain low in the coming quarters. In other words, the tanker day rates will remain high and therefore Nordic American Tankers will continue to report strong results.
The strong growth in revenue due to higher day rates is evident from the company’s 4Q14 results with NAT reporting revenue of $43.1 million in 4Q14 as compared to revenue of $20.4 million in 4Q13. From a day rate perspective, the average day rate for 4Q14 was $24,000 per day as compared to $21,000 in 3Q14 and $14,100 in 4Q13. Clearly, the day rates have surged as oil prices have declined.
While this is the past, the positive point to note here is that the day rate trend in 1Q15 has been even better as compared to 4Q14. When the company reported its 4Q14 results on February 9, the 1Q15 day rates were well above $30,000. In a latest press release dated March 19, the company has stated that it expects day rates to be near $35,000 in 1Q15. Therefore, the day rates will be higher by at least 40% as compared to 4Q14 and investors can expect the company to report a strong set of revenue and cash flow numbers.
Strong results will help the company sustain dividends at higher levels. Further, an announcement on 1Q15 dividends is expected in April 2015 and I would not be surprised if the dividends are higher as compared to 4Q14. In the March 19Â press release, the management has also indicated that the tanker market remains strong as the company moves into the second quarter. With oil prices remaining low, I would not be surprised if day rates for 2Q15 sustain around $35,000.
I must also mention here that the company’s breakeven in terms of day rate is $12,000. Therefore, from a breakeven or profitability perspective, Nordic American Tankers has a strong buffer and this implies that dividends are secure in the foreseeable future.
Considering these factors, I remain bullish on Nordic American Tankers and I expect increase in dividends. Further, I also expect the stock to trend higher in the coming months.
