Shipping stocks, and specifically tanker stocks, have long been a happy hunting ground for income investors, due to their generous dividends.
Shipping stocks, and specifically tanker stocks, have long been a happy hunting ground for income investors, due to their generous dividends. The downside is that the dividends can be "lumpy", moving up and down dramatically over time. Earnings, and hence cash available for dividends, is often tied to spot market rates, which can be very volatile, as recent events have reminded investors again.
Most investors think in terms of VLCC (Very Large Crude Carriers), and ULCC (Ultra Large Crude Carriers), the so-called "super tankers", when they think of tanker firms, but Teekay Offshore Partners L.P., a recent offshoot of Teekay Corp, is focused on a different, and what I feel will be a growing niche within the tanker industry. TOO is the world's largest owner/operator of shuttle tankers, which function in lieu of pipelines in the transfer of oil from offshore production platforms to land.
TOO currently fields a fleet 35 shuttle tankers, 5 FPSOs, and 11 Aframax tankers. A FPSO is a floating vessel used by the offshore industry for the processing and storage of oil and gas. The vessel is designed to receive oil or gas produced from nearby platforms, process it, and store it until it can be offloaded onto a tanker. Aframax class tankers are largely used in the basins of the Black Sea, the Caribbean, the China Sea, and the Mediterranean, where the larger vessels are difficult, if not impossible to operate. By using long term charters, TOO minimizes the earnings volatility that comes with relying on spot charter market. As of 12-31-09, TOO closed at $19.95, and pays a fraction over 9%. A slight pullback to the $18.60 range could well be in the offing, but even at current levels, I think it's not unattractive.