One of the Motley Fool writers wrote on July 7th, 2011 that there are huge dividends to be received from two liquid natural gas (LNG) shipping companies. The article is a lead up to the recommendation of Teekay LNG Partners L.P. (TGP) and Golar LNG Ltd. (GLNG). I had heard of Teekay before during my research of dry bulk shipper Safe Bulkers (SB), but I had never heard of Golar. I didn’t have any awareness of these company’s dividend records, earning power, or strength of balance sheets.
Teekay LNG has a dividend yield above 6% and Golar only yields about 2.6%. Let’s take a closer look at each of these stocks to determine at what price to buy them low. The bottom line is that they are both speculatively price right now, but at the right price they can be high dividend stocks. It will take a few more years of increasing earnings to overcome their spotty records. Don’t buy these stocks at today’s prices.
Teekay LNG Partners L.P. (TGP)
Market price: $37.10
Shares: 58.81 million
Market capitalization: $2.18 billion
Dividend record: strong and growing, but the earnings aren’t covering the dividend payments!!
Dividend: $0.63/quarter
Dividend yield: 6.78%
Recent EPS: $1.45
Dividend payout ratio: 173% ($2.52 annual dividend / $1.45 recent EPS) This is not good. Expect a dividend cut in the not too distant future.
Earning power: $0.53 average earnings @ 58.81 million shares
(earnings adjusted for changes in capitalization; TGP has issued some shares over the years)
EPS Net inc. Adj. EPS
2006 ($0.28) ($9.591 M) ($0.16)
2007 $0.45 $25.662 M $0.44
2008 $0.36 $19.486 M $0.33
2009 $0.85 $42.145 M $0.72
2010 $1.48 $78.728 M $1.34
Five year average EPS $0.53
Consider buying below $6.36 (12 times average earnings)
Consider selling above $10.60 (20 times average earnings)
TGP is trading for 70 times average earnings. This is highly speculative.
Balance sheet: Stagnant and unexciting; weak current financial strength
Book value per share: $15.23 TGP traded below its book value as recently as late 2008.
Price to book value ratio: 2.43 (not too bad)
Current ratio: 0.27 (over 2.0 is good)
Quick ratio: 0.14 (over 1.0 is good)
Golar LNG Ltd. (GLNG)
Market price: $37.65
Shares: 68.12 M
Market capitalization: $2.56 billion
Dividend record: spotty, usually $0.25/quarter, no earnings to pay the dividend!!
Dividend: $0.25 quarterly
Dividend yield: 2.6% ($1.00 annual dividend / $37.65 share price)
EPS: none
Dividend payout ratio: can’t be computed without earnings
Earning power: $0.65 per share @ 68.12 million shares
(earnings adjusted for changes in capitalization; GLNG has kept its number of shares very constant)
EPS Net inc. Adj. EPS
2006 $1.05 $71.673 M $1.05
2007 $2.07 $136.204 M $2.00
2008 ($0.15) ($9.989 M) ($0.15)
2009 $0.34 $23.082 M $0.34
2010 $0.01 $0.384 M $0.01
Five year average earnings $0.65
Consider buying at $7.80 (12 times average earnings)
Consider selling at $13.00 (20 times average earnings)
GLNG is trading at 57.92 times average earnings. This is highly speculative.
Balance sheet: horrible trending downward
Book value: $6.09
Price to book value ratio: 6.18 (bad because the stock is priced six times more than the capital invested in the company)
Current ratio: 0.78 (over 2.0 is good)
Quick ratio: 0.57 (over 1.0 is good)
Disclosure – I don’t own positions in either of these stocks.
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