Are these two oil tanker companies high dividend stocks?

If you use Google Finance’s basic stock screener to find high dividend stocks, then you might have noticed two oil tanker stocks that appear to be high yielders.  Frontline (FRO) and Teekay Tankers (TNK) appear to yield 7.7% and 11.59% respectively.  But this really isn’t the case.  I have taken a cursory look at both of these stocks and now I will share what I found with you.

Frontline (FRO)  POSSIBLE INVESTMENT at this time, but meager dividend now.

Market price: $24.08

Total shares: 77.86 M

Dividend yield: according to google finance 7.7%, but its computations can be unreliable when a company lowers its dividend.  Frontline cut its dividend to $0.10 per quarter.  The last four dividend payments were: $0.25, $0.75, $0.75, $0.25.  I think the estimated yield is probably more like 1.6% ($0.10 x 4 = $0.40; $0.40/$24.08 = 0.0166 or 1.6%).

            EPS       Net inc.             Adj. EPS

2006     $6.90    $519 M              $6.63

2007     $7.62    $570 M              $7.32

2008     $9.14    $699 M              $8.98

2009     $1.32    $103 M              $1.32

2010     $2.07    $161 M              $2.06

The 5 yr. average earnings were $5.26 per share.  12 times 5 yr. average earnings equals $63.12.  20 times 5 yr. average earnings equals $105.20.  The market price of Frontline is only $24.08.  It is trading at only 4.6 time its 5 yr. average earnings, but tanker rental prices are down over 80% from 2006-2008.  Tanker prices will not rebound to 2006-2008 prices.  There are too many tankers with no cargo due to the global recession.

If we look at the 2 year average instead, then a different valuation becomes clear.  The 2 yr. average earnings are $1.70 per share.  12 times 2 yr. average earnings equals $20.40.  20 time 2 yr. average earnings equals $34.00.  Frontline is trading at 17 times its 2 yr. average earnings.

Frontline appears to be close to a possible value purchase below $20.40.  I would wait to see what their earnings look like in 1Q and 2Q in 2011.  I haven’t really analyzed its dividend record, earnings and balance sheet.  I’ll take a look at it if the price drops below $20.40.

Teekay Tankers (TNK) SPECULATIVE HIGH YIELDER now

Market price: $10.75

Total shares: 77.86 M

Dividend yield: according to google finance 11.59%, but its computations can be unreliable when a company lowers its dividend.  Teekay Tankers has cut its dividend to $0.22 per quarter.  The last four dividend payments were: $0.31, $0.34, $0.37, $0.26.  I think the estimated yield is probably more like 8.2% ($0.22 x 4 = $0.88; $0.88/$10.75 = 0.0818 or 8.2%).

Teekay has more than double the number of outstanding shares in 2010.  This highlights the importance of adjusting reported EPS for changes in capitalization.

            EPS       Net inc.             Adj. EPS

2006     $2.68    $40.153 M         $0.66

2007     $2.76    $40.551 M         $0.67

2008     $2.03    $58.067 M         $0.96

2009     $1.28    $38.934 M         $0.64

2010     $0.37    $14.662 M         $0.24

The 5 yr. average earnings were $0.63 per share.  12 times 5 yr. average earnings equals $7.56.  20 times 5 yr. average earnings equals $12.60.  The market price of Frontline is only $10.75.  It is trading at 17 times its 5 yr. average earnings, but tanker rental prices are down over 80% from 2006-2008.  Tanker prices will not rebound to 2006-2008 prices.  There are too many tankers with no cargo due to the global recession.

If we look at the 2 year average instead, then a different valuation becomes clear.  The 2 yr. average earnings are $0.44 per share.  12 times 2 yr. average earnings equals $5.28.  20 time 2 yr. average earnings equals $8.80.  Teekay appears to be a speculative purchase above $8.80.  It is currently trading at 24.4 times it 2 yr. average earnings.

I would wait to see what their earnings look like in 1Q and 2Q in 2011.  I haven’t really analyzed its dividend record, earnings and balance sheet.  I’ll take a look at it if the price drops below 20 times its 2 yr. average earning of $8.80.

Jason Brizic
Torch Technologies, Inc.
Ground Test Analyst
MDA/DEJ (Engineering Test Analysis)
(719) 721-8359
jason.brizic.ctr@mda.mil
jason.brizic.ctr@mda.smil.mil

“Freedom consists of a lack of desire to control others” – Harry Browne

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Published in: on April 6, 2011 at 12:50 pm  Leave a Comment  

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