An 11.9% yield and surging earnings: could this be the best dividend stock?

This dividend stock’s benefitting from a supercycle that’s sending its earnings higher. And that bodes well for its mega 11.9% dividend yield.

| More on:
Tanker coming in to dock in calm waters and a clear sunset

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Nordic American Tankers (NYSE:NAT) is a crude-oil-shipping company listed in the US and offers one of the strongest dividend yields I’ve come across.

It’s often the case that stocks with strong dividend yields aren’t really growing, or operate in fairly slow sectors. Essentially, they’re mature companies that don’t have much need to reinvest in their operations.

While Nordic American’s a mature company, it’s operating in a booming sector right now, and it’s among the best placed to take advantage of a shortage of tankers globally.

Let’s take a closer look.

Pandemic hangover

During the pandemic, there was a notable dip in tanker ship orders due to several factors, including uncertainty surrounding global economic conditions and fluctuations in oil demand. Moreover, the oil price crash and oversupply further deterred investment in new vessels.

According to Clarkson Research Services, only 32 new tanker orders were placed globally in 2020, down from 77 in 2019. This represents a significant 58% decline year on year. Shipbuilders faced cancellations and postponements of existing orders as shipping companies sought to mitigate financial risks amid those volatile market conditions.

And the repercussions of this are still being felt today. The global economy and demand for hydrocarbon products has recovered, but supply’s lagging because there are fewer new vessels. While many older ones haven’t been retired as planned, they don’t meet the standards and capacity required of many prime clients. Many of these older vessels are members of Russia’s so-called shadow fleet.

Two major events

When tankers get stuck in traffic or have to reroute, this pushes day rates — the cost of leasing the vessels — up. That’s simply because they’re taking more time to reach their destinations and therefore results in a reduction of available supply.

There are currently two major events that are pushing day rates up further. These are drought conditions at the Panama Canal — as few as 18 vessels are crossing the waterway each day, down from around 50 — and the attacks on vessels transiting the Bab-el-Mandeb by Houthis.

This is having a profound impact on supply. For reference, avoiding the Bab-el-Mandeb strait journeying between the Gulf to the Mediterranean increases journey time by 70%. Likewise, vessels waiting to transit the Panama Canal can either remain in a queue for weeks, or travel around South America.

The bottom line

Nordic American operates a fleet of Suezmax tanker with an average age of 12.6 years. This means it’s well positioned to benefit from surging day rates, but perhaps not as much as peers such as Scorpio Tankers which has a younger and more fuel-efficient fleet. The impact of these higher day rates are already visible. Nordic reported profits of $98.7m for 2023, more than six times the $15.1m achieved in 2022.

Moving forward, the company said in late February that 57% of spot voyage days for the first quarter of 2024 were booked at $40,690 per day per ship. “There is a scarcity of our type of ships, leading to strong results“, management noted. Running costs are just $9,000 a day.

Collectively, this points to a healthy dividend and improved performance. Remember, these tankers take years to build and supply will remain constrained for some time. I certainly think it’s one of the strongest dividend stocks out there. Plus, it’s trading at just 7.4 times forward earnings.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

James Fox has positions in Nordic American Tankers Limited. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Businessman use electronic pen writing rising colorful graph from 2023 to 2024 year of business planning and stock investment growth concept.
Investing Articles

Could the FTSE 100 be set to soar in 2024?

The FTSE 100 keeps threatening to go off on a growth spree. And weak sentiment keeps holding it back. But…

Read more »

Investing Articles

Is this FTSE 100 stalwart the perfect buy for my Stocks and Shares ISA?

As Shell considers leaving London for a New York listing. Stephen Wright wonders whether there’s an undervalued opportunity for his…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

3 things I’d do now to start buying shares

Christopher Ruane explains three steps he'd take to start buying shares for the very first time, if he'd never invested…

Read more »

Investing Articles

Investing £300 a month in FTSE shares could bag me £1,046 monthly passive income

Sumayya Mansoor explains how she’s looking to create an additional income stream through dividend-paying FTSE stocks to build wealth.

Read more »

Investing Articles

£10K to invest? Here’s how I’d turn that into £4,404 annual passive income

This Fool explains how using a £10K lump sum can turn into a passive income stream worth thousands for her…

Read more »

Investing Articles

1 magnificent FTSE 100 stock investors should consider buying

This Fool explains why this FTSE 100 stock is one for investors to seriously consider with its amazing brand power…

Read more »

Rainbow foil balloon of the number two on pink background
Investing For Beginners

2 under-the-radar FTSE 100 stocks under £2

Jon Smith identifies two FTSE 100 stocks that he believes are getting a lack of attention from some investors but…

Read more »

Investing Articles

£8,000 in savings? I’d use it as a start to aim for £30k a year in passive income

Here's how regular investing in the UK stock market, over the long term, could help us build up some nice…

Read more »