Thursday, August 2, 2012

Buying and Selling a Stock: Part 6

DHT Holdings recently released their quarterly earnings. You can read the earnings call transcript at Seeking Alpha. There were a few things of interest to me on this call. Their earnings per share for the quarter were only $0.23 and they are giving a $0.24 dividend, which is not sustainable by itself but better than giving a dividend off of negative earnings. Bank of America anyone?

The other bad news is that the "downturn" looks to be longer than hoped for. In fact management said, "...the tanker market recovery is some time away." Given the rise of pipelines and alternative energy, is this is the beginning of the end for oil tankers? Perhaps. Also, keep in mind that DHT deals with used tankers and they said that "...way too many new buildings..." were coming up, which could mean trouble for an aging fleet. Although, that might also mean they will be able to ship for lower prices than competitors.

On the positive side, they prepaid all of their debt until Q1 2015, which is great! No debt payments means more money for earnings. Plus interest rates are low, and they hinted that they were looking for ships, or even an entire fleet to buy. So they could use the money raised from the rights offering as a downpayment on new ships, bought at low interest rates.

For the next two quarters they have 59% charter coverage, which means if their spot ships (ships operating on a day to day sort of basis) made no money, they would still be profitable for the next two quarters. In 2013 on the other hand they have only 29% charter coverage, which means they have to make money on the spot market ($6,000 per day), provided they don't get any more charters. They do seem committed to a $0.24 dividend per quarter for the next two quarters (three dividends), but look to change (lower?) the dividend in 2013.

The share price has gone down and down and down, so I bought more this week. It's goes ex-dividend Tuesday. At a closing price today of $6.35, a $0.24 dividend is a 3.78% return, in basically a week. Provided you sell it at the same price or higher, although given how the price of this stock has changed in the last six months, you stand to lose it all.

A few last financials. With 15.3 million shares including the preferred shares not yet converted to common stock, at a price of $6.35, that's a market cap of $97.2 million. They have $71 million in cash in the bank and a book value of $287 million. The last four quarters their book value has gone up and their debt has gone down.

I am long (meaning I bought it and am waiting to sell as opposed to "short" which means sold waiting to buy) DHT.

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