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Ship Finance Int'l: Steady Income in a Volatile Sector

by: Tim Plaehn July 20, 2008 | about stocks: FRO / NAT / SFL    
Tim Plaehn

Tim Plaehn

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What would you think of a stock that had the following characteristics:

  • Current yield: 7.7%
  • No dividend quirks: Not a LP, MLP or foreign stock with withholding rules.
  • Steady dividend growth: 2004: $1.55 per share, 2005: $2.00 per share, 2006: $2.09 per share, 2007: $2.20 per share and a minimum of $2.27 for 2008.
  • The quarterly dividend has never been reduced (and usually increased) since the company’s spinoff in 2004.
  • The company is well capitalized and has sufficient cash flow to maintain the dividend and continue to grow the business.
  • Finding news about the company outside of its website is almost impossible.

The company I am discussing is Ship Finance International Ltd. (SFL). Ship Finance was spun off by Frontline (FRO) starting in 2004 as a leasing company with 47 of what had been Frontline’s tankers. The fleet now consists of 59 vessels (33 tankers) of various types with another 14 on order. The fleet currently has an asset value of approximately $7 billion vs. a little over $2 billion in long term debt.

SFL’s business model has the company lease its vessels on long term (10-20 years) bareboat leases. It gets paid first on the money the ships' lesees earn plus have profit sharing above a certain income level on many of the ships, notably those leased to Frontline. The dividend payout is between 30% and 40% of free cash flow, leaving plenty of cash left to continue growing its fleet.

Ship Finance stock is a buy anytime the share price is pushed down enough to drive the yield over 8%. Combine SFL with my other Income Portfolio tanker company, Nordic American Tankers (NAT) to get a pair of well run shipping companies that allow you to profit from the tremendous swings of this sector. Reinvest your dividends into which ever of the pair is the best value at the time.

Note: I have long positions in SFL and NAT.

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This article has 7 comments:

  •  
    Jul 20 09:11 AM
    Plus based in Bermuda hence no foreign withholding - a useful thing for non us holders.
    There is a bunch more shippers with similar profiles.
    Reply
  •  
    Jul 20 10:13 AM
    dont forget FRO itself.i have no agenda or connection just a happy stockholder.check out FRO.
    Reply
  •  
    Jul 20 02:09 PM
    I like SFL. It pays a good dividend and appears to be a winner. I don't understand why the stock price does not always reflect the outlook for the company.
    Reply
  •  
    Jul 20 06:19 PM
    Let's see, FRO has a lower P/E and more than double the dividend. SFL was spun off, why? FRO seems like a much better buy if you don't own either. What about TNK which yields over 12% ?
    Reply
  •  
    Jul 20 09:42 PM
    if you can for the next few years FRO & SFL will treat you good.
    Reply
  •  
    Jul 21 03:47 PM
    Remember the higher yielding tanker companies like FRO, NAT and I believe TNK earn their rates on the spot market and the dividends fluctuate hugely. This last quarter ($2.75)was the highest dividend for FRO since they paid $3.10 in Q1, 2005. SFL is a more conservative play, having first call on much of FRO's revenues and a 20% profit share above a certain revenue level.
    Reply
  •  
    Jul 21 06:19 PM
    I am hearing the registers ( notice I was plural) ring. I have NAT, until this mroning I played hard with FRO and will come back with a slight pull-back. If it drops one dollar I will pull the trigger again. I will also pounce on SFL possibly by week's end. There we will remain long. Though volatle as mentioned, very worthy dividends dancing on the backs of reduced share pricing.
    Reply
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