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Wednesday August 18, 2010
Teekay Tankers Ltd. (TNK): A 'Cash Machine'
by Bryan Perry, editor The Cash Machine  After screening for high-yield energy-related stocks, I came across Teekay Tankers Ltd. (TNK), and decided to showcase this company after drilling down into its fundamental outlook. The company is a pure play on transcontinental shipping from production source to refinery destinations. In order to increase its conventional oil tanker business, parent company Teekay Corp. (TK) developed TNK in December 2007. The two companies work together to manage Teekay Tankers' fleet of nine double-hull Aframax tankers and five double-hull Suezmax tankers. This is done by using short- or medium-term fixed-rate time-charter contracts and spot tanker market trading. 
TNK is a publicly traded subsidiary of Teekay Corp. and issues most of its cash flow to shareholders through a full payout dividend policy. The company offers investors downside protection while maintaining some upside by managing its fleet through a mix of fixed-rate charters and spot tanker market trading. This allows for a risk/reward balance and low dividend breakeven rate, making it possible for TNK to pay a dividend even when spot markets are weak. Since its inception, TNK has been the principal growth medium for Teekay Corp.'s tanker franchise. The company is pushing to increase TNK's dividend because it receives 20% of its cash flow above $3.20 per share as long as shareholders received a minimum per share dividend of $2.65 in the previous years. The current annual dividend payout is $1.48 per share for a current yield of 13.43%. Net demand for oil on a global basis is trending higher and getting crude to its rightful destinations from the source is taking longer because of farther distances. This creates twin catalysts for TNK shares to trade higher and provide for rising dividend payouts going forward. Those two drivers, plus arguably the best-run crude tanker shipping company at the management helm, makes for a strong investment case for owning TNK. Buy under $13. Learn more about this financial newsletter at Bryan Perry's The Cash Machine. |
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