Nordic American Tankers (NYSE:NAT) Is Increasing Its Dividend To $0.05

The board of Nordic American Tankers Limited (NYSE:NAT) has announced that it will be paying its dividend of $0.05 on the 20th of December, an increased payment from last year's comparable dividend. This takes the annual payment to 1.5% of the current stock price, which unfortunately is below what the industry is paying.

View our latest analysis for Nordic American Tankers

Nordic American Tankers' Dividend Is Well Covered By Earnings

If it is predictable over a long period, even low dividend yields can be attractive. 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.

According to analysts, EPS should be several times higher next year. If the dividend extends its recent trend, estimates say the dividend could reach 1.0%, which we would be comfortable to see continuing.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was $1.20 in 2012, and the most recent fiscal year payment was $0.05. The dividend has fallen 96% over that period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

The Company Could Face Some Challenges Growing The Dividend

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. It's encouraging to see that Nordic American Tankers has been growing its earnings per share at 25% a year over the past five years. While the company is not yet turning a profit, it is growing at a good rate. If profitability can be achieved soon and growth continues apace, this stock could certainly turn into a solid dividend payer.

We should note that Nordic American Tankers has issued stock equal to 21% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

The Dividend Could Prove To Be Unreliable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 4 warning signs for Nordic American Tankers you should be aware of, and 2 of them are potentially serious. Is Nordic American Tankers not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.