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Teekay Tankers still not a buy at $5.97 (-44% since April 2011).

I wrote about Teekay Tankers (TNK) back on April 6th, 2011.  I said it was a speculatively priced high dividend stock.  My conclusion was this:

“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.”

Read the rest here: http://www.myhighdividendstocks.com/high-dividend-stocks/are-these-two-oil-tanker-companies-high-dividend-stocks

Teekay Tankers is trading at $5.97 as I write this.  That is a drop of 44% since April 2011.  So I will make good on my promise to examine Teekay Tankers when it goes below $8.80.  The company has issued a lot of stock since April 2011, so my $8.80 price has to be adjusted downward as you will see below.

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The yield back then was reported as 11.59%, but I knew that Google Finance didn’t calculate the dividend yield correctly because of the recent dividend cut.  I estimated the dividend yield at 8.2% which still a high dividend stock.  It was trading at over 24 time its two year average earnings.  I usually use at least five years average earnings, but the tanker market has fundamentally changed for the worse in the past three years.

There is an enormous supply glut of oil tankers which have a depressing effect on tanker rental prices.  We will not see the high rental prices of 2008 in the distant future, so I’m throwing out the effects of the years 2006-2008.

Based in the Bahamas but incorporated in the Marshall Islands, Teekay Tankers owns and operates 11 medium-size oil tanker vessels. Previously a part of Teekay Corporation, TNK went public in December 2007. Although it's not a true limited partnership, Teekay Corporation retains a controlling interest in its spun-out subsidiary, and TNK intends to pay out nearly all of its distributable cash flow to shareholders.

Teekay Tankers (TNK)

Market price $5.97

Market cap: $369 million

Shares outstanding: 61.88 million

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Dividend Record: In one word – volatile.

Dividend: $0.21 quarterly, but TNK hasn’t paid the same quarterly dividend twice in the last five years.  Who knows what it will be next quarter?

Dividend yield: 14% ($0.84 annual dividend/$5.97 stock price)

Dividend payout ratio: 386% WARNING ($1.12 dividends last 12 months/$0.29 EPS last 12 months)  The dividends are being paid for by the issuance of new stock shares.  There will be either a massive dividend cut or another drop in the price of the stock as they issue more shares to finance the dividend.

Earning Power:  TNK has an average adjusted earning power of $0.38 EPS @ 61.88 million shares since 2009.

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

 

EPS                Net inc.          Adj. EPS        Shares

2006               $2.68              $40.153 M     $0.64              -

2007               $2.76              $40.551 M     $0.66              13.384 M

2008               $2.03              $58.067 M     $0.94              25.000 M

2009               $1.28              $38.934 M     $0.63              28.644 M

2010               $0.37              $14.662 M     $0.24              42.330 M

2011Q1          $0.12             $7.09 M          $0.11              57.39 M

2011Q2          $0.02              $1.44 M          $0.02              61.88 M

Consider a value buy at or below $3.01 per share (8 times average adj. earning since 2009)

Consider an investment buy at or below $4.51 per share (12 times average adj. earnings since 2009)

Consider selling as it becomes speculatively priced at or above $7.52 per share (20 times average adj. earnings since 2009)

Balance Sheet: up mostly due to the issuance of shares of stock

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Book value per share: $9.88

Price to book value: 0.60 (very good)

Current ratio: 1.78 (over 2.0 is good)

Quick ratio: 1.62 (over 1.0 is good)

Financial leverage: 1.73 is low.  This is good

Debt to equity ratio: 0.66 is also good

Conclusion: Wait for a massive dividend cut or a massive price drop down to the $4.51 - $3.01 range.  Then monitor the technicals to spot near the bottom.

Disclosure: I don’t own Teekay Tankers.

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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

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