Nordic American Tankers' (NYSE:NAT) Dividend Will Be Reduced To US$0.01

By
Simply Wall St
Published
November 27, 2021
NYSE:NAT
Source: Shutterstock

Nordic American Tankers Limited's (NYSE:NAT) dividend is being reduced to US$0.01 on the 21st of December. This means that the annual payment is 3.2% of the current stock price, which is lower than what the rest of the industry is paying.

Check out our latest analysis for Nordic American Tankers

Nordic American Tankers' Distributions May Be Difficult To Sustain

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Even in the absence of profits, Nordic American Tankers is paying a dividend. It is also not generating any free cash flow, we definitely have concerns when it comes to the sustainability of the dividend.

Looking forward, earnings per share could rise by 19.9% over the next year if the trend from the last few years continues. The company seems to be going down the right path, but it will probably take a little bit longer than a year to cross over into profitability. Unfortunately, for the dividend to continue at current levels the company definitely needs to get there sooner rather than later.

historic-dividend
NYSE:NAT Historic Dividend November 28th 2021

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. The first annual payment during the last 10 years was US$1.70 in 2011, and the most recent fiscal year payment was US$0.05. The dividend has fallen 97% over that period. A company that decreases its dividend over time generally isn't what we are looking for.

The Company Could Face Some Challenges Growing The Dividend

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. It's encouraging to see Nordic American Tankers has been growing its earnings per share at 20% a year over the past five years. Unprofitable companies aren't normally our pick for a dividend stock, but we like the growth that we have been seeing. If the company can become profitable soon, continuing on this trajectory would bode well for the future of the dividend.

The company has also been raising capital by issuing stock equal to 14% of shares outstanding in the last 12 months. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

The Dividend Could Prove To Be Unreliable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. Strong earnings growth means Nordic American Tankers has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. We don't think Nordic American Tankers is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 4 warning signs for Nordic American Tankers (1 can't be ignored!) that you should be aware of before investing. We have also put together a list of global stocks with a solid dividend.

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