SFL $29.26 Ship Finance Int'l: Steady Income in a Volatile Sector
by: Tim Plaehn posted on: July 20, 2008 | about stocks: FRO / NAT / SFL
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.
