Tsakos Preferred: 5 big-dividend oil tankers compared (NYSE: TNP)
Shipping company stocks can be volatile. However, many of them offer more stable high-dividend preferred stocks that appeal to some income-oriented investors. In this report, we take a look at Tsakos Energy Navigation (New York Stock Exchange: TNP) (a company that provides shipping services for crude oil and petroleum products around the world), including its attractive qualities and current risks, and with particular emphasis on its 9.6% yield preferred shares (NYSE: TNP.PD) (NYSE: TNP.PE) (NYSE: TNP.PF). We also compare it to high-dividend preferred stocks offered by 5 more oil companies. We conclude with our firm opinion on the investment.
Tsakos Energy Navigation (often referred to as “TEN”, although its NYSE symbol is “TNP”) offers shipping services for national, major and independent oil companies and refiners (such as Exxon Mobil (XOM), British Petroleum (BP ), ConocoPhillips (COP) and others) on long, medium and short term charters. As of April 21, 2022, its fleet consists of 66 double-hull vessels (including 60 conventional tankers, three LNG carriers and three Suezmax DP2 shuttles). Tsakos was incorporated in 1993 and is based in Athens, Greece. And with a market capitalization of just around $437 million, Tsakos is still one of the top 10 oil companies in the world (others include International Seaways (INSW), SFL Corp (SFL) and Navios Maritime Holdings (NM ), to name a few.
Current market conditions: improving
As mentioned, business can be volatile for Tsakos. However, market conditions are currently improving for various reasons.
For starters, oil demand continues to rise as the world adapts and recovers from the pandemic, as you can see in the following chart.
This Tsakos chart (above) only covers 2021, but oil prices and demand have continued to rise in 2022 (Brent is currently trading above $100) – good for business. Additionally, as global GDP continues to increase over time, demand for the shipping industry (including Tsakos) is also expected to increase.
Additionally, daily rates (see chart above) have continued to climb dramatically over the past few months, which has had a very positive effect on the common stock of Tsakos (and other ocean shippers).
In addition, the Russian-Ukrainian conflict has created a global reshuffling of trade routes, leading to an increase in tanker trips, which is positive for ton-mile demand.
Additionally, competition for Tsakos may decrease to some extent as demand increases (as previously explained), new builds across the industry are down, and competing fleets continue to age (as the fleet of Tsakos remains relatively young). According to Tsakos, the new industry-wide backlog is historically low compared to fleets over 15 years old (see chart below), although there have been signs of change more recently. .
Additionally, upcoming regulations and discussions on alternative propulsion fuels are expected to further stimulate scrapping activity for the industry (a good thing for Tsakos). High scrap prices should also contribute to an increase in scrap (which is also good for the younger Tsakos fleet).
The financial situation is strengthening
And while market conditions continue to improve, Tsakos’ financial position also continues to strengthen. For example, the company has paid off its debts over time, which reduces risk and creates greater financial flexibility.
Additionally, the company’s recent earnings release showed improvement. Specifically, Tsakos beat expectations for revenue and earnings, and these numbers were for the quarter ended March 31 (i.e. daily rates and demand have both improved significantly since then) . According to Tsakos, each $1,000 increase in spot rates has a positive impact of $0.39 on annual EPS (based on current vessels in spot-only contracts and current common shares outstanding, which are likely to change).
In its latest earnings release, Tsakos reported GAAP EPS of -$0.12 and revenue of $149.7 million (both beating expectations). Notably, EPS is negative (not great for common stock, but preferred stock is ahead of common stock, and these net income and EPS numbers are after preferred dividends have already been paid).
Dividends: common and preferred shares
As you can see in the chart below, Tsakos has paid a very large amount of dividends to investors over the years, but the dividend payouts have fluctuated over time. On the other hand, Tsakos preferred stock dividends have been flat (and ahead of the capital structure).
Three series of Tsakos preferred shares are currently trading in the market (and two series, B and C, have been redeemed by the company). You can see more information about Series D, E and F below, including recent prices, yields, when they can be redeemed (and at what price) by Tsakos, and the floating interest rate. on two of the series, E and F, if they are still trading after the date of redemption.
Quantum Online is a good resource for information on specific preferred stocks (including Tsakos preferred stocks).
If you haven’t already figured it out by historical price volatility and negative EPS numbers, Tsakos common stock (and to a lesser extent, preferred stock) is risky. For example, oil demand and oil prices are volatile, and these can have a significant impact on Tsakos’ business (and common stock price).
In fact, the whole industry is risky. For example, another shipping company, Teekay Corporation (TK), had its preferred stock restructured, bought out by Brookfield (BAM), renamed Altera Infrastructure (ALIN.PA) (ALIN.PB) and then very recently defaulted in a relatively short period of time. . .
Moreover, the political risks are real, such as the Russian-Ukrainian conflict. For example, protesters recently blocked a Greek tanker carrying Russian goods from entering a British port. And even if Tsakos and other shipping companies believe that the sanctions imposed on Russia are futile, the political disruptions create risks. So far, the disruption has benefited Tsakos (as the redrawing of trade routes has led to an increase in tanker travel), but the policy still creates risks.
Rising interest rates are another risk factor, because as rates rise, the price of preferred shares may fall (the market drives the price down to make the return commensurate with the security’s specific risks and market interest rate). Fortunately for investors, interest rates have risen again in recent weeks and Tsakos preferred shares are now trading below their $25 redemption price.
Another risk factor is issuing more shares. For example, in the first quarter of 2022, Tsakos issued (through its ATM program) 3,603,697 common shares and 8,292 preferred shares raising $28.8 million in capital for the company. This can be dilutive and add risk to existing shareholders (especially since preferred stocks are inferior to bonds in the capital structure) and especially considering that common stocks trade at a very steep discount to at book value (price to book) of approximately 0.341. Relatively speaking, it also makes preferred stock more attractive compared to common stock (because as common stock dilute, preferred stock is higher in the capital structure).
5 other oil tanker preferred shares
For reference, here is a list of 5 other oil tanker companies offering multiple series of high dividend preferred shares. And as you can see, yields are high and yields have risen relatively well this year (while the rest of the market as measured by the S&P 500 (SPY) is down significantly this year).
(GLOP) (DLNG) (GLOP) (HMLP) (PXS) (JOINT.PA)
You may see a few names on the list that you know (through common or favorite) and have considered investing in in the past (or currently own). Higher yields and more stable prices are attractive to some investors, but many face similar risks as described above.
If you’re an income-focused investor, some tanker preferred stocks are currently attractive. However, many of them face similar risks (as described in this report) and should probably only be considered as part of a more broadly diversified portfolio. In fact, we particularly like Tsakos (due to its improving financials and market conditions) and selected it as one of our top ideas in our recent multi-sector list of 200 high-dividend preferred stocks. However, at the end of the day, you need to select investments that match your goals and match your risk tolerance. Disciplined, long-term, goal-oriented investing is a winning strategy.