On Tuesday, Ship Finance International (NYSE:SFL) saw its price target increased to $16.00 from $15.00 by BTIG, while the firm maintained a Buy rating on the stock. Ship Finance reported first-quarter earnings before market open, with adjusted EBITDA approximately 19% above the consensus estimate and 11% above BTIG's forecast.
The adjusted EBITDA of around $152 million, which included about $8 million in associated income, reflected a sequential increase of about 15% and a year-over-year rise of approximately 37%.
The company also announced an increase in its quarterly dividend by $0.01 to $0.27, translating to an annualized yield of around 8%. The dividend now represents a payout of about 33% of operating cash flow, compared to a payout of around 43% in 2023. This suggests that Ship Finance has the potential to further raise its dividend in the future.
Ship Finance's strategic acquisitions and charter agreements have contributed to its financial performance. The company acquired three Long Range 2 (LR2) newbuild tankers for a total of approximately $230 million from a third-party affiliate.
These tankers are expected to begin 5-year time charters between the second and fourth quarters of 2024, contributing around $200 million to Ship Finance's backlog. This deal implies an average day rate of approximately $37,000.
Additionally, Ship Finance secured five-year charters for three approximately 10,600 Twenty-foot Equivalent Unit (TEU) containerships with Maersk, which is expected to add around $210 million to the company's backlog.
After the end of the quarter, the company also extended charters for three more containerships, ranging between 8,700 and 9,500 TEU, adding about $30 million to the backlog. Furthermore, two car carriers were delivered during the quarter, and both are under 10-year charters.
The firm's analyst highlighted Ship Finance's ability to increase operating cash flow through a combination of strategic fleet growth and long-term time charters, which should support the continuation of dividend growth.
InvestingPro Insights
Following the positive assessment by BTIG, Ship Finance International (NYSE:SFL) demonstrates several fundamental strengths that are worth highlighting. With a robust gross profit margin of 60.53% for the last twelve months as of Q4 2023, the company shows impressive efficiency in generating revenue over its cost of goods sold. This aligns with the firm’s ability to increase operating cash flow, as noted by BTIG’s analyst.
Additionally, the company’s dividend yield stands at a compelling 7.25%, which is particularly attractive to income-focused investors. This yield is supported by Ship Finance’s history of maintaining dividend payments for 21 consecutive years, showcasing a commitment to returning value to shareholders. The recent increase in the company's quarterly dividend further underscores this point.
Investors should also note that while the Relative Strength Index (RSI) suggests that the stock may be in overbought territory, Ship Finance has experienced a high return over the last year, with an 80.04% price total return, indicating strong investor confidence and market performance. The stock’s low price volatility may appeal to those seeking more stable investment options.
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