Tanker coming in to dock in calm waters and a clear sunset© Provided by The Motley Fool

This lesser-known stock has a stunning 12.3% dividend yield

Story by Dr. James Fox

Nordic American Tankers (NYSE:NAT) offers investors a stunning 12.3% dividend yield that’s paid quarterly.

On the surface, it’s an excellent option for passive income investors. Having delved deeper, I also think it’s an excellent option in general.

The dividend

For FY23, Nordic American is set to pay investors $0.48 per share. This is paid as a quarterly dividend and is equal to $0.12 per quarter. This is expected to rise to $0.50 per share per year in 2024.

The only issue is the dividend coverage. The coverage ratio tells us how many times a company can afford to pay its dividend from net earnings. Normally, we’re looking for a coverage ratio of two times as a benchmark for a healthy dividend that has room to grow.

However, Nordic American’s model is different. With earnings expected to come in at $0.63 per share in 2024, the dividend coverage ratio is just 1.26. I would consider that quite weak, but the company is at the forefront of a super-cycle in the tanker sector.

Tailwinds

The price of leasing vessels has risen substantially over the past two years. Nordic American operates 20 Suezmax tankers — these are the largest vessels that can fit through the Suez Canal — and they’re among the most in-demand right now.

As we can see from the below chart, the cost of leasing a Suezmax tanker has risen around 133% from its lows. And since Hamas’s attack on civilians and the ensuing invasion, Suezmax tankers have been trading at a premium.

Source: Fearnleys© Provided by The Motley Fool

So, why has this happened? Well, there are several factors.

• A dearth of vessels: Companies ordered fewer vessels during the pandemic. As such, the global fleet is ageing and there are fewer vessels to respond to growing demand.
• Fewer shipyards: Tankers are massive vessels and they take years to build. Compounding this shipyard closures. There are less than half the number of shipyards today as in 2007.
• Houthi attacks: The attacks mean vessels are rerouting around the Cape of Good Hope to avoid the Suez Canal, adding thousands of miles to certain journeys. In turn, this means longer journeys, and less available supply.
• Panama drought: Capacity at the Panama Canal has been cut by around 60% due to a drought. Vessels either have to sit in queues or find an alternative route.

The bottom line

Nordic American’s dividend coverage ratio could certainly be stronger, but given the industry dynamics, I’m not too worried. Given the shortage of tankers in the sector, analysts are forecasting a multi-year super-cycle that will push earnings higher. It could be a transformative period for companies that are well-positioned, and I believe Nordic American is one.

£££££££££££

Not an IT so not for this blog.

A trend has only 3 directions

Up

Down

or Sideways

Once you understand the direction u can start to count your money. I prefer buying dividend Investment Trusts and looking at the chart to see where best I can re-invest my dividends.

I copy the chart above as a picture paints a thousand words.

It’s 9 dma Simple and Weighted, only to be used with a proper money management strategy.

Note the red arrow where dividend xd dates interfere with the short term direction of the chart. This is not a foolproof way of trading just something to assist u before u trade as u would have been whipped sawed at the blue arrow. Use only if u have decided to buy a share and then use the chart as an entry an exit point.

Using the chart u would have bought around 505p, collected the dividend of 17p, u may have sold on the xd date or not. If u did sell u could have bought back from the chart. I am not authorised to give buy or sell advice, so u need to make your own decisions about your hard earned.

The Motley Fool By Stephen Wright

Whether it’s growth or dividends, UK shares can be great investments. In my investment portfolio, I have stocks from both the FTSE 100 and the FTSE 250.

Working out what shares to buy can be a challenge. But there’s a thought experiment I like to use when I’m figuring out what to invest in.
As an investor, I want to focus on the highest quality opportunities available. Since I don’t have unlimited funds, it’s important to me that I try and avoid second-rate opportunities as far as I can.

One way of doing this is imagining a genie appears and offers to double my net worth – but with one catch. I have to invest it all straight away in no more than two stocks.

Anything I invest in can’t be sold for 30 years, so my ability to generate a return depends almost entirely on the underlying business. Supposing I take the offer, the question is, what I should buy?
Ultimately, whatever I settle on probably deserves a place in my actual investment portfolio anyway. And right now, I think I’d opt for a pair of passive income opportunities.

Games Workshop
The first stock is Games Workshop (LSE:GAW). The company looks like it combines the best elements of both growth and income stocks.

Widening margins and increasing revenues have helped the business grow its earnings per share at an average of 32% a year over the last decade. That’s impressive.

There’s also a dividend with a 4.25% yield on offer. And the company’s low capital requirements puts it in a strong position to maintain this.

A price-to-earnings (P/E) ratio of 23 is a risk – it requires growth to continue and this can’t be guaranteed. But this is an unusually good business I’d be happy to own shares in for a long time.

The PRS REIT
Another stock I’d choose is The PRS REIT (LSE:PRSR). The firm’s a real estate investment trust (REIT) that leases a portfolio of houses around the UK.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.

As a REIT, the company distributes 90% of its rental income to investors as dividends. So I can buy shares, do nothing, and receive a 5.15% return a year in cash.

PRS has £415m in debt, which is a lot for a £426m firm. Investors should be aware that if the company can’t refinance this when the time comes, the dividend’s likely to fall.

Around £352m is fixed at 3.8% for an average of 16 years though. Within that time, I’d expect the business to find an opportunity to refinance, maintaining its dividend along the way.

Going all in
Fortunately, I’m not required to invest 100% of my net worth. But even if the situation isn’t realistic, thought experiments like this can reveal important insights when it comes to finding stocks to buy.

I’m looking to build a diversified portfolio, but I’m also not looking to compromise the quality of my investments along the way. I want all of my investments to be ones I’m confident in.

A good way of assessing this is by thinking about whether I’d be happy going all in on that stock if I had to. If so, there’s a decent chance it’s a stock I should consider buying.

ACTIVITY BREAKDOWN
Top 10 Holdings

Name Holdings
DS Smith PLC 4.7%
BP PLC 4.3%
National Grid PLC 4.2%
Imperial Brands PLC 4.2%
Shell PLC 4.0%
HSBC Holdings PLC 3.7%
SSE PLC 3.6%
British American Tobacco PLC 3.2%
CMC Markets PLC 3.1%
Conduit Holdings Ltd 2.9%

With bid chatter in the press for BP, the latest u might say. But hold on too your Income Trusts, as most hold BP, to see if there are any developments.

BWRM a quasi tracker in that’s it cyclical so if u can choose when to sell u shouldn’t lose any money whilst it still pays a dividend of 6%.

Darvas boxes drawn on the chart. Note most price rises will have a breakout, whilst all breakouts do not lead to a price rise. U would also have collected a dividend of 17p to re-invest into your Snowball.

At the arrow the market get’s u into a bad trade, if u were hasty, no one said trading was easy, simple yes.

A trader would buy a tracker VWRL or similar with an historic ARR of 7% and keep everything crossed the market hasn’t crashed before 2028 when they need their money. The choice my friend is yours.

KEY INFORMATION

ISINGB0002404191TIDMTR28ExchangeLSEPar Value £100Maturity Date7/12/2028 Coupons per year2 Next coupon date7/6/24 Coupon 6%Income Yield 5.54% Gross redemption yield 4.10% Accrued interest 206.56p Dirty Price£110.04

U would like to invest your cash to earn some interest, u need the cash for a special reason at the end of 2028 and therefore cannot risk losing the capital but u would like the interest to re-invest in your Snowball.

Most Government debt (gilts) can be bought thru your broker, AJ Bell charges £5 and u just need to leave an order, which is filled very quickly.

The yield u will receive is 5.54% but u have to pay the holder for the accrued dividend, so the redemption yield is 4.1%.

Next payment 7 June. If u hold to redemption, u don’t need to do anything as the money will be paid into your account. Nearer the redemption date u could probably sell in the market for most of the redemption value. Interest tax free if held within a tax free wrapper. If u wanted to achieve a blended yield of 7% u would need to pair trade it with similar to RECI.

How I’d use the Warren Buffett method to aim for £310 in monthly passive income

Story by Christopher Ruane

Earning money without working for it is not as difficult as it might at first sound. By buying shares in well-known companies, for example, I can earn passive income in the form of dividends. If I wanted to try and generate some such income in 2024 and beyond, I would apply some investing lessons from billionaire Warren Buffett.

Starting affordably
When Warren Buffett was a schoolboy, he did not wait to begin investing.

Rather than sitting on his hands until he had more money or experience, Buffett made his first stock purchase on a small scale and grew his portfolio from there.

I would do the same, beginning to invest in a way that made sense for my current financial circumstances.

Compounding dividends
If I wanted to earn £310 per month in dividends, how much would I need to invest?
That depends on the average dividend yield I earned. If I could achieve an average yield of 8%, for example, I would need to invest £46,500.

But that does not mean I need to start investing with that much. In fact I could start with nothing and work my way towards the goal over the long term.

Warren Buffett is certainly a long-term investor. He also uses a technique I think could help me grow the amount I have to invest over time. That is known as compounding, which basically means reinvesting dividends in more shares rather than taking them out as cash.

If I invested £500 each month in shares yielding 8%, for example, I would hit my £310 monthly passive income target after eight years. But simply by compounding my dividends I would hit it after six years.

It is no coincidence that Warren Buffett reinvests the earnings his company makes rather than paying them out to shareholders as dividends.

Going for quality
Is an 8% dividend yield achievable?

It is and is currently offered by FTSE 100 shares like M&G. Some, like British American Tobacco and Vodafone, even offer a higher yield.

But Warren Buffett did not get rich by picking shares only for their yield. After all, no dividend is ever guaranteed to last. Instead, he looks for great businesses selling for what he thinks is an attractive price.

The sorts of shares that are appropriate for Warren Buffett might not make sense for me. He has his own circle of competence when it comes to assessing shares to buy and, like everyone, I also have my own.

But I think the Buffett method could be right for me.

Focussing first and foremost on buying into brilliant businesses at good prices, I could hopefully set up growing passive income streams for years to come. If the businesses do well and I have not overpaid for the shares, I might also benefit from the potential for capital growth.

The plan is to invest 100k to earn a ‘pension of between 14 and 16k and retain all the capital.

Canada Life figures show the 65-year-old with a £100,000 pension pot could buy an annuity linked to the retail price index (RPI) that would generate a starting annual income of £3,896. That’s up from £2,195 in the New Year following a 77% spike in rates this year.
Oct 22

Let’s be kind and use the figure of 4k, u would need a fund of 400k to buy
an annuity of 16k pa and u would have to donate all your capital to a pension provider.

If u intend to follow the 4% rule u would also need a fund of 400k but u would retain the capital.
It’s madness to me but u may have a different opinion, different strokes for different folks.

One fact is that if u invest 100k in a tracker u will not have a fund of 400k after tenyears, so GL if that’s your strategy as u will need it.