Nordic American Tanker Shipping Ltd. yesterday announced that the dividend for 2Q10 was $0.60 per share which is the same as for 1Q10. At a time when several shipping companies produce negative results, the Board of Directors is pleased to announce that NAT turned in a solid net income in 2Q10. We expect that the fleet of NAT will reach a minimum of 20 vessels by the end of 2011. We have no plans to tap the equity markets to fund this expansion, since the Company currently has ample financial resources to reach a fleet of 24 vessels. The Company will pay the dividend on or about September 2, 2010, to shareholders of record as of August 20, 2010. Since the autumn of 1997, when the company's first three vessels were delivered, NAT has always paid a quarterly dividend; the total dividends paid through the second quarter of 2010 amount to $41.34 per share. The
A dividend of $0.60 per share has been declared for 2Q10 - the same as for 1Q10. Earnings per share in 2Q10 were $0.17 as compared to $0.21 in 1Q10.
In April, 2010, NAT entered into an agreement with Samsung Heavy Industries Co., Ltd, to build two suezmax tankers of 158,000 dwt each to be delivered in the third and fourth quarters of 2011. The purchase price for the two vessels is in aggregate $129.5m. Generally, the values of newbuildings have risen somewhat since we signed our agreement with Samsung Heavy Industries Co., Ltd.
— The Company consolidated its commercial operations during the second quarter. Our vessels that are traded in the spot market are now in the Gemini suezmax cooperative arrangement. Of the 16 vessels that our company currently operates, 15 are in the spot market.
— The Company has no net debt and does not engage in any type of derivatives.
— So far in 3Q10, the spot tanker market is lower than in 2Q10.
Fleet Expansion and Accretion During 2Q10, we have seen some appreciation of asset values in the secondhand market for vessels. Initial Public Offerings (IPOs) have contributed to this development, which is now abating. Investors have become more discerning about the quality of shipping companies in which they invest. We are in a good position to take advantage of strong shipping markets, which will mean increased dividend payouts. If markets are weak, we will be ideally positioned to grow our fleet accretively. During 2009, NAT agreed to acquire four vessels which have been delivered to the Company. As indicated above, the fleet is expected to stand at a minimum of 20 vessels late in 2011. The expansion of the Company has improved our position relative to that of some of our competitors who have had a difficult time coping with the consequences of the international financial crisis.
Dividend Capacity
At present ship values, the Company has ample financial capacity to increase its fleet to 24 vessels without tapping the equity market. The Company will continue to keep a strong balance sheet with no or little net debt. However, in a weaker market environment the Company is prepared to add some debt to the balance sheet, assuming a slightly higher financial risk.
This does not imply any change in the strategy of the Company and non-retiring debt continues to be an integral part of the business model of Nordic American. With all but one vessel (the Gulf Scandic which will be redelivered to us in November 2010) operating in the spot market, the Company is in a position to reap the benefits of a potential upswing in the tanker market.
Below is a chart indicating the annual dividend capacity based on a fleet of 20 vessels and 24 vessels at different spot market rates. Link to the complete 2Q10 dividend report: http://hugin.info/201/R/1436346/381463.pdf The above is based on 355 income days per vessel per year. The net debt is about $7m per vessel with a cash break-even level of $11,300 per day per vessel for a 20 vessel fleet. The same numbers for a 24 vessel fleet are $16m per vessel and $12,300 per day per vessel. The numbers show the substantial dividend capacity of NAT. When the freight market is above the cash break-even level, the Company can be expected to pay a dividend. The breakeven rate is the amount of average daily revenues our vessels would need to earn in the spot market in order to cover our vessel operating expenses, voyage expenses, if any, cash general and administrative expenses, interest expense and other financial charges. The annual spot rates as reported by R.S. Platou Economic Research a.s. show that during the last 10 years up to the end of 2009, 7 years have produced about $40,000 on average per day per ship or better. This is reflected in the graph later in this report. Typically, our dividend correlates with the suezmax spot freight rates. Going forward, we can expect that spot suezmax freight rates may fluctuate in an unpredictable manner. The lack of commercial bank financing and higher margins on shipping loans are challenging for debt-laden shipping companies. By having no or little net debt, NAT is better positioned to navigate the financial seas, as we believe that is in the best interests of our shareholders. Our primary objective is to maximize total return[1] to our shareholders, including maximizing our quarterly cash dividend. The Company has further acquisitions under evaluation and will work to continue to strengthen its position compared with that of its competitors.
