This dividend stock could pop next week!

This dividend stock happens to have one of the biggest dividend yields I’ve come across — 10.7% — but I’m predicting the share price to pop next week.

| More on:
Black woman using loudspeaker to be heard

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 dividend stock I’ve spoken about before. It’s something of a hidden gem for UK investors. The Bermuda-headquartered company runs a fleet of Suezmax tankers and currently offers a mega 10.7% dividend yield.

What’s with my optimism?

Putting the huge dividend to one side, Nordic American Tankers is operating in a booming sector. Analysts had been warning for years that the sector wasn’t building enough new vessels, and they were right.

Currently, the global tanker fleet is the oldest it’s been in living memory, and there are just two new supertankers entering service in 2024 — that’s 90% lower than the average this millennium.

Remember, old vessels can’t operate on prime contracts. Big energy companies like Exxon and Vitol don’t use clapped-out Soviet tankers to transport their valuable products. This means well-prepared companies, especially those with plenty of vessels under 15-years-old, are perfectly positioned to benefit.

Red Sea turmoil

What’s more, there’s trouble in the Red Sea, one of the world’s most important shipping lanes. Due to Houthi attacks, approximately 90% of Red Sea shipping is being diverted around South Africa.

According to legendary investor J Mintzmyer, this rerouting “adds 40% to that key Asia to Europe route, it adds 60% to 70% to Asia-Mediterranean trades“. This is eating up any spare tanker capacity and has been pushing leasing rates sky-high on affected routes.

As the name suggests, Nordic American’s tankers are the largest vessels that can fit through the Suez Canal — Suezmax. And that means they’re in demand. The spot rate for leasing a Suezmax tanker has tripled over two years.

Sourced from Teekay.com

What’s happening next week?

Nordic American is due to report its Q1 2024 earnings next week — 29 May pre-market (US time). This means we’ll be able to see how well the company is performing.

Analysts are expecting the company to announce earnings per share of 11¢ and revenues of $66.19m. In the last quarter, the tanker stock reported earnings per share of 8¢ per share and revenues of $59.25m. So, we’re looking at a 10% increase in revenue.

Am I being too optimistic?

It’s not a perfect science, but leasing rates for Suezmax tankers remained strong throughout Q1. I don’t have the exact data, but long-run contracts appeared to running at a premium in Q1 compared with Q4, and spot rates remained elevated. The total average time charter equivalent (TCE) achieved by Nordic in Q4 was $39,170 per day per ship.

It’s also worth noting that peers like Scorpio Tankers, which I have been bullish on, also outperformed expectations in Q1. The larger tanker company highlighted higher TCE revenue in Q1 of 2024 versus Q4 of 2023.

However, it’s also worth recognising that the company’s own guidance is extremely important. Nordic’s management was cautious about how long these elevated prices would last. Should the Red Sea attacks stop, I’d also expect to see rates decrease in the short term. Long-term supply and demand imbalances remain.

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

Mixed-race female couple enjoying themselves on a walk
Investing Articles

Are Raspberry Pi shares a once-in-a-lifetime chance to get rich?

With Raspberry Pi shares surging after a successful IPO, could this UK tech startup offer a long-term wealth creation opportunity…

Read more »

Newspaper and direction sign with investment options
Investing Articles

Huge gains and 9% yields: why now’s an amazing time to be a stock market investor

The stock market’s generating fantastic returns in 2024. Whether you're looking for gains or income, it’s a great time to…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

This steady dividend payer looks like one of the best bargain stocks in the FTSE 100

A yield of 4.7% and a consistent dividend record make this FTSE 100 company look like good value in an…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

£9,000 in savings? That could become passive income of £19,175 a year

It's possible to invest affordable sums of money into building a big passive income stream. Here's how I'd go about…

Read more »

Black father and two young daughters dancing at home
Investing Articles

Legal & General shares: a once-in-a-decade passive income opportunity?

Is a dividend yield at its highest level in a decade, combined with a strong record of increasing payouts, a…

Read more »

Investing Articles

With a 7% yield and 4.1 P/E, is this the best passive income stock on the FTSE 350?

Millions of Britons invest for a passive income. While our writer isn't buying this stock yet, he believes it's worth…

Read more »

Middle-aged Caucasian woman deep in thought while looking out of the window
Investing Articles

This amazing FTSE 250 has a 8.8% dividend yield and trades at just 4x forward earnings!

Our Foolish writer believes this FTSE 250 stock is worth keeping a very close eye on. However, he's not keen…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Could this brilliant airline stock be the most undervalued company on the FTSE 100?

Our writer believes this FTSE 100 stock may provide market-beating returns over the coming years, noting its undervalued metrics and…

Read more »