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Analyzing Dividends of Highest Dividend Yield Crude Tanker Company

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Frontline’s cash flow

Frontline’s (FRO) operating cash flow in 1Q16 was $121 million compared to $49 million in 1Q15—a whopping 147% rise year-over-year (or YoY). The company shares this spectacular rise in cash flows through dividends with its shareholders.

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Dividends

Before the 2015 merger of Frontline and Frontline 2012, the company did not pay any dividends to its shareholders. The first dividend after the merger was paid by Frontline in December 2015.

In May 2016. the company announced a cash dividend of $0.40 per share for the first quarter. This is approximately 70% of the adjusted earnings per share. Frontline (FRO) has reserved $0.17 per share to finance the potential acquisitions of newbuilds.

Dividend yield

Frontline’s current dividend on May 2, 2016 was ~23.9%. Following are the dividend yields of its peers:

  • Nordic American Tankers (NAT) has a dividend yield of ~10.8%.
  • Teekay Tankers (TNK) has a dividend yield of ~7.7%.
  • Navios Maritime Partners (NAP) has a dividend yield of ~13.6%.
  • DHT Holdings (DHT) has a dividend yield of ~12.7%.

Although Frontline has a high dividend yield, dividend investors should keep in mind that the company’s dividends are volatile as the company does not follow a strategy of fixed dividends. The company pays a dividend equal or close to EPS adjusted for non-recurring items. In the last quarter, the dividend was $1.75 per share, whereas now it is $0.40 per share.

Coverage ratio

The coverage ratio is calculated as a ratio of a company’s cash flow over the dividends it pays to its shareholders. The coverage ratio is a measure of a company’s ability to pay dividends. A higher ratio is generally a healthy sign.

A ratio that is less than 1 indicates that a company’s cash flows are lower than its dividends paid, which may also indicate that its current level of dividends is not sustainable in the long run. Frontline has a healthy coverage ratio of ~2.0x.

Investors interested in broad exposure to industrials can invest in the SPDR Dow Jones Industrial Average ETF (DIA).

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