It’s not arduous to search out low cost dividend shares at this second in time. Nevertheless, this one actually appears the half on paper, providing an enormous 13.2% ahead dividend yield.

Which means if I have been to speculate £1,000 as we speak, I’d obtain £132 over the following 12 months within the type of dividends. Curiously, the corporate pays its dividends quarterly, which can curiosity traders in search of common money movement.

So, what is that this lesser-known dividend inventory? Effectively, it’s Nordic American Tankers (NYSE:NAT), a US-listed firm that specialises in Suezmax crude oil tankers. 

An ignored sector

Nordic American Tankers operates a fleet of 19 such tankers. Suezmax vessels are designed to transit the Suez Canal at full capability, usually carrying round a million barrels of oil.

These ships are versatile, capable of serve many main ports and navigate by way of key transport routes just like the Suez and Panama Canals.

Ship provide has been drastically impacted during the last 12 months resulting from droughts in Panama and assaults on ships within the Purple Sea. This shortage of obtainable ships has led to an uptick in earnings for corporations like Nordic. The agency reported that about 57% of its spot voyage days for Q1 2024 have been booked at a median Time Constitution Equal (TCE) of $40,690 per day per ship — that’s far above long-term averages.

Shortage isn’t simply a problem within the quick time period, nonetheless.

Tanker corporations delayed new orders throughout the pandemic. The result’s a a lot older international fleet than we’ve seen for years. And these tankers take years to construct.

As such, provide shortages are anticipated to persist.

A dividend large, however there are points

Nordic American is a dividend large, having paid a dividend for every of the final 108 quarters. It’s a really phenomenal report.

Nevertheless, dividends haven’t all the time elevated throughout the interval, and generally the dividend funds have been pretty nominal.

This 12 months, Nordic American is because of pay $0.48 per share in dividends, primarily based on the present $0.12 per share per quarter.

Nevertheless, the corporate is simply forecast to earn $0.43 per share in 2024, suggesting that administration is paying out extra in dividends than the corporate earns. It additionally factors to a ahead price-to-earnings of 8.5 occasions — a 24% low cost to the sector.

This payout ratio is an enormous pink flag and one that implies the dividend should fall.

The caveat is that monetary efficiency is anticipated to enhance considerably in 2025. In line with analysts, Nordic will earn $0.64 in 2025 after which $0.68 in 2026.

With this in thoughts, it might proceed with the present dividend funds. However it’s a threat.

A threat price taking?

Personally, I consider it’s a threat price taking. I used to be first made conscious of this inventory by one of many world’s high analysts overlaying the transport and tanker sectors. His returns — round 43% each year over eight years — have been actually groundbreaking.

He thinks this inventory will carry out in the long term, and so do I.