Herbjorn Hansson’s Nordic American Tankers has “an ocean of dividends on the horizon”, according to Clarksons Securities.

The investment bank says the US-listed suezmax owner will benefit from the resurgent tanker market through high trading liquidity and an established track record of payments to investors.

This should make the company “an investor favourite” as high rates lead to surging cash flow, Clarksons Securities head of research Turner Holm and associate Jacob Stolt-Nielsen said in a note to clients.

“If the company pays out 100% of free cash flow after debt repayments, which more closely resembles recent dividend actions, then the stock could yield 30% on next year,” they added.

The fleet of 20 tankers may be older than peers at an average of 11 years each, but this provides more relative upside potential to asset values since 10-year-old suezmaxes remain 16% below newbuilding parity, a measure of age-adjusted replacement cost, the analysts argue.

“Meanwhile, we believe the improving market will allow for fleet renewal in the medium-term as well as refinancing of high-cost debt in the short-term, which would further enhance dividend capacity,” they said.

Nordic American’s fleet age has dropped from 15 years since 2018, after three newbuildings were delivered.

Another two are on order for handover this year.

“We expect the company will take an opportunistic approach to further renewal. Tanker values remain modest relative to newbuild parity,” Holm and Stolt-Nielsen said.

Clarksons Securities also believes at-the-market share offerings from NAT will be a thing of the past.

Limited ship supply

The supply side is in owners’ favour. The investment bank said that scheduled suezmax newbuilding deliveries for the next three years amount to just 4.2% of the current tanker fleet.

Only 1.9% of the fleet is on order.

“We believe that current supply dynamics provide a more sustainable fundamental outlook for the sector, and more downside protection, compared to previous tanker market rallies,” Turner and Stolt-Nielsen said.

“If the tanker market plays out as we expect with high rates through the next two years, then asset values are likely to rise above newbuild parity,” they added.

The current suezmax newbuilding price of $80m requires a long-term day rate of $34,000, assuming an 11% unlevered yield, the analysts forecast.

Clarksons Securities is forecasting rates of $48,000 per day for 2023 and $56,000 the year after.