Thursday, December 28, 2006

Does a 30% Yield Mean Smooth Sailing or Choppy Seas Ahead?

The shipping stock sector [meaning companies that use ships for shipping, not FedEx (FDX) or UPS (UPS) type shipping] is one which is noted for its high yields. There are currently 20 that have yields of 5% or more, with one, Frontline Ltd. (FRO), yielding in excess of 30%. This Bermuda based company owns and operates oil tankers for transporting crude oil, coal and iron ore.

Although the company has been paying dividends on a regular basis [March, June, August or September, and December) along with special dividends, the amount of the dividend has fluctuated dramatically, making it very difficult to determine what the yield really is. Do you look at historical dividends for the last year, or project future dividends based on the latest quarterly payment? If you project, the yield comes out to 31.3%, but based on history, the yield is ‘only’ 21.9%.

The second highest on the list, Knightsbridge Tankers Ltd. (VLCCF), another fluctuating but consistent dividend payer, has a forward yield of 17.1% but a backwards yield of 15.4%. Nordic American Tanker Shipping Ltd. (NAT) has paid quarterly dividends since 2001, but not one dividend payment has been the same as any other dividend payment they have made. Of the top three yielding shipping stocks, this is the only one that has a higher backwards yield that forwards yield. The projected yield is 15.3% and whereas the yield based on the last four payments is 16.9%. Go figure.

Remember, that just because a stock is paying a fairly consistent high yield, doesn’t mean that they will continue to do so and doesn’t mean that they may eliminate their dividend altogether. Jim Cramer has panned shipping stocks (including DSX and VLCCF) on a couple of his recent shows due to excessive number of shipping stocks and overabundance of ships. The price of the stock can drop far more than the dividends earned. In addition, many of these stocks have wide bid and asked spreads and low daily volumes. Do your research and assume worst case before setting sail on shipping stocks for their high yields.

The following is a list of shipping stocks in order of highest projected yield, based on their latest quarterly payment.

Frontline Ltd. (FRO) 31.3%
Knightsbridge Tankers Ltd. (VLCCF) 17.1&
Nordic American Tanker Shipping Ltd. (NAT) 15.3%
Omega Navigation (ONAV) 12.7%
Eagle Bulk Shipping (EGLE) 11.8%
Double Hull Tankers (DHT) 10.7%
Diana Shipping (DSX) 10.5%
Arlington Tankers (ATB) 10.4%
US Shipping Partners (USS) 9.7%
Aries Maritime Transport (RAMS) 8.6%
Ship Finance International Ltd. (SFL) 8.5%
Genco Shipping & Trans (GSTL) 8.5%
General Maritime (GMR) 8.1%
Quintana Maritime (QMAR) 7.6%
Seaspan (SSW) 7.5%
K-Sea Transport Partners (KSP) 7.2%
Stealthgas (GASS) 6.3%
Teekay LNG Partners LP. (TGP) 5.7%
Tsakos Energy Navigation (TNP) 5.5%
Navios Maritime (BULK) 5%

Disclosure: Author does not own any of the above at this time.

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