SummaryThis stock yields over 19% and has a new 80% dividend payout policy.
Industry tailwinds have created 49% revenue growth and four-digit EPS growth.
It's selling at a good discount to book value, and is just 3% above its 52-week lows.
Feel like going fishing? With dividend stocks getting red hot in this rally, we went bottom fishing for some worthy candidates which may have been overlooked.
This brought us back to the tanker industry, which we've covered in
past articles, and its largest player, Euronav NV (NYSE:
EURN), from which Mr. Market has jumped ship.
(Source: EURN website)
But this seems like an oversight at best. Over the past five quarters, EURN has put up huge numbers, thanks to booming spot rates brought on by increasing demand for oil and vessels to carry or ship it.
In addition, the company started paying dividends. Like many European companies, EURN pays two semi-annual dividends; one, in May, is its final dividend, and the other, in September, is its interim dividend.
(Source: NASDAQ)
Dividend Forecast: EURN will report Q2 2016 earnings this week, on 7/28/16, before the market opens, and it'll probably announce its interim dividend in late August like it did in 2015.
In an effort to get a handle on what the company might pay out in September, we put together two tables. This first one compares the spot rates to EURN's quarterly EPS since management declared a policy of paying out 80% of earnings in 2015.
On the Q1 2016
earnings call on 4/27/16, management gave an update on how Q2 2016 spot rates were shaping up, and how they might affect Q2 earnings:
"It should be remembered that seasonality in tanker rates during Q2 and Q3 tends to average lower in absolute freight rates. Despite this, we have booked so far 43% of the available VLCC spot days at rates of more than $59,000 per day and nearly 42% of the available Suezmax spot days, at an average of more than $32,500 per day. Therefore, on the current run rate, Euronav is on course for sequential growth, Q2 on Q2, reflecting the sustainability in the current rate cycle."
This table shows the dividends paid out for 2015 earnings and the dividend payout ratio for the company, which averaged around 75%. EURN earned $.58/share in Q2 2015, and management has said that there would be growth in Q2 2016.
Even if earnings are flat, at $.58/share (which they shouldn't be), EURN should pay out somewhere around $.98/share, using a 75% payout ratio.
EURN's management made another recent shareholder-friendly move; in June, it took advantage of cheap share prices and bought back 192,415 shares.
Earnings Tailwinds: Take a look at these wild growth percents the company has racked up over the past four quarters. Even though it did a secondary issue, its EPS still grew 1,323% (Are we in Techville here?).
What's going on? It seems that, in spite of slower growth in China and other parts of the world, cheaper oil has increased demand. China has also diversified its supplier base.
Looking back further, oil demand has been growing steadily, by an average of 1.1 million barrels/day, since 1990. In fact, the IEA upped its forecast to 1.3 mbpd for 2016-2017.
Sounds plausible, but aren't there way too many ships? Well, there is a new financial constraint facing fleet owners - credit has been tightening up due to regulatory lending pressures on the banks.
This has led to fewer orders for vessels in the VLCC and Suezmax industry.
Here's another interesting factoid - it takes US shale producers just six months to start up a field vs. 2.5 to over five years for other producing areas. This should keep supplies coming. More production increases demand for vessels.
(Source: EURN website)
With demand and production rising, and fewer vessels on order, the industry should be able to sustain attractive spot rates. Obviously, these rates won't rise forever, but EURN's low breakeven costs cushion it from dips as well - $27.3K for VLCCs, and $24K for Suezmax vessels.
Another boon is that, due to fewer orders, the cost of newbuilds has come down, even as earnings have gone up.
Valuations: We updated this tanker valuations table to compare EURN to a mixed group of shipping firms - DHT Holdings (NYSE:
DHT), Teekay Corp. (NYSE:
TK), Knot Offshore Partners (NYSE:
KNOP), and GasLog Partners LP (NYSE:
GLOP).
EURN is the big gorilla in this varied group. Its yield is the second highest, and its P/E is the lowest, just 3.06. You read that right - when is the last time you saw a P/E that low for a dividend-paying stock? Like DHT and TK, it's selling below book value, at just .69 of book value.
When we saw these valuations, coupled with its new dividend policy and industry tailwinds, we took the plunge and bought some shares.
Financials: Not much to quibble with here either - EURN has by far the lowest debt load and the highest ROA and ROE ratios. Its operating margin is above average for this group.
Capital Structure: Here's a statement you don't see too often - "We will never issue non-accretive equity." The company proved it in the past four quarters that even though it issued new shares, its EPS went through the roof.
(Source: EURN website)
All tables furnished by DoubleDividendStocks.com unless otherwise noted.
Disclaimer: This article was written for informational purposes only, and is not intended as investment advice. Please practice due diligence before investing in any investment vehicle mentioned in this article.
Disclosure: I am/we are long EURN, DHT, GLOP.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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