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Strategies & Market Trends : Dividend investing for retirement

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To: Mannie who wrote (24935)	8/7/2016 6:18:02 PM
From: E_K_S	Read Replies (1) of 34328

Hi Manny - I posted this at Investor's Village in response to a post that lumped SFL in w/ all the other Oil Tanker shippers. It is not and I tried to reflect that in the following response. FWIW, SFL has been a long term hold for me and a great dividend payer. I also believe in management. I did discover that SFL's weighted average cost of capital is 7.38%. While it's return on invested capital is 6.78%. This will have to change and I hope it's not thru a dividend cut. --------------------------------------------------- Here was the original Post at IV SFL, FRO, NAT, DHT much which i do not think applies to SFL . . . -------------------------------------------------- I have owned SFL since their IPO. They are not a true shipper/operator but rather finances the transactions hence their name Ship "Finance" International. They are still exposed to the sector but do have a diversified portfolio of assets w/ several lessees that help diversify their default risk exposure. The one most recent event for SFL and J. Fredriksen (the largest shareholder & John Fredriksen is a Norwegian-born oil tanker and shipping magnate, who owns the world's largest oil tanker fleet) was the default by Frontline Ltd (FRO) a few years back of one or more payments on oil tanker finance lessees. Fortunately for FRO, this is also a Fredriksen owned company and a debt for equity swap was arranged that benefited SFL. This positive debt restructure event for FRO would not have happened if SFL was not the debt holder (and bank). I see SFL as one step removed from the other companies you listed (NAT & DHT) that are 100% exposed to crude oil tankers. In fact SFL's fleet of 74 vessels (19 tankers, 22 Dry Bulk, 24 Liners and 9 Offshore) only represent 25% exposure to the tanker sector w/ 90% of those under long term contract and 10% new builds to be financed and put under long term contract for their licensee/client. SFL IPO'ed in early 2004 at a price of $19.00/share. They have paid a dividend every quarter (44 quarters). Their quarterly dividend has ranged from a low of $0.30/share (2009) to a high of $0.56/share (2008) and even a special dividend in 9/2004 of $1.77/share. They currently pay a $0.45/share quarterly dividend that reflects a yield of 11.8%. I hold 60% of my SFL shares in ROTH/IRA and 40% in taxable account w/ an avg price of $15.05/share. My last buy was a 15% portfolio add 7/7/2017 at $13.80/share. SFL is a top 5 position and is a great dividend payer. I have owned several John Fredriksen companies (SDRL, MHG, DSSPF & SFL) and SFL & MHG have been a steady performers. SDRL & DSSPF are in a cyclical down turn w/ low oil prices and are exposed to large debt/leverage and shrinking revenues. Those companies are in survival mode but Fredriksen is/has been buying up the debt for less than $0.50 on the dollar. It helps when you have one of the richest people in the world as the largest shareholder (in all his companies) where his interests are in line w/ the common shareholder. You would have been correct if you included SDRL in your list rather than SFL as that is/was a special case of building too many of these multi-billion offshore drilling platforms at a time when the market price for oil fell more than 60%. The typical day rate for these drill ships range from $450K-$656K per day! I have been slowly accumulating SDRL shares at/below $2.50/share using the dividends from my SFL holdings. You should check out SDRL, the assets they own and the potential for those assets to generate FCF (once the cycle turns). Forget about the oil tankers w/ 150K day rates but look at the day rates for these huge drill ships. The barriers to entry are huge as not many companies have the cash to support a fleet this size and you have the largest shareholder buying up the debt. Seadrill Partners LLC (SDLP) is the MLP for SDRL. I only own the common shares (SDRL) but see this as a speculation. SFL is my long term holding and as a ship finance company is the bank that shippers go to to finance their fleet. The other thing to note is that many of these shippers use unsecured debt to finance their fleet. Much of this debt comes in the form of unsecured, notes, unsecured preferred, unsecured perpetual prefereds credit revolvers (typically above all other debt w/ tougher credit covenants). SFL uses none of these. SFL owns all the ships they lease and will work w/ their banks to obtain senior secured bonds and bank facilities based on the lease rates and terms. That's not to say that debt/leverage can be an issue especially for a finance company like SFL. SFL's weighted average cost of capital is 7.38%. While it's return on invested capital is 6.78%. This will be something to watch in the next several quarters. I suspect they will refinance bank notes to lower rates and/or cut the dividend and/or have new leases w/ higher rates and/or sell assets and/or defer new builds so their return on invested capital is greater than their cost of capital. Management has a lot of options but history has shown they do get that in line w/i 4 quarters (or less). Good Investing EKS

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