Dear Mr. Berko: I've decided to invest about $100,000 in the stocks of liquefied natural gas carriers for income and growth. I know enough about the natural gas business to be dangerous but nothing about the transportation or storage of the product. During the past seven years, I got lucky and made some big money trading futures but then made some bad judgments and lost it back. While I've lost a bundle, though, I've had a lot of unnerving fun. I know there are a lot of public companies that own LNG carriers, but I don't know enough about the shipping business to make the right buying decision. If you could find me something with a high dividend (at least 9 percent), I'd be willing to take the risk on three or four issues. I'd appreciate your good judgment. Please pick some good LNG carrier stocks for me. — DL, Rochester, Minn.
Dear DL: You sound like a good young flake with a lot of money, someone bereft of common sense and short on experience. My good judgment and your bad judgment might make a team! Will Rogers once remarked, "Good judgment comes from experience, and a lot of that comes from bad judgment." He was right. Believe me; I know!
Global energy demand, a function of population growth and improving living standards, should continue to grow. As a plentiful resource, natural gas is the cleanest-burning fossil fuel and is a key energy source for the future. And the global natural gas trade (specifically liquefied natural gas) is expected to grow at a faster pace than natural gas consumption. At the end of 2015, there were about 405 LNG carriers (we need more), each carrying about 10 million cubic feet of natural gas. New LNG carriers take between 20 and 30 months to build, at an average cost of $200 million to $270 million, and have a useful life of about 35 years.
There are two ways to transport natural gas: pipelines and LNG carriers. Pipelines move natural gas on land, but a significant portion of future growth is expected to occur on water. Since 2010, LNG trade has grown annually at 7.5 percent, versus domestic production of 1.8 percent. To move natural gas across water, the gas must be filtered and liquefied by cooling it to minus 260 degrees Fahrenheit. This shrinks the volume 600-fold, making transportation costs very economical.
There's a good possibility that Dynagas LNG Partners (DLNG-$16.45) would be attractive to a lad like you. Dynagas owns six LNG carriers, with a combined capacity of 35 million cubic feet. This $170 million-revenue company has $58 million in cash and an $8.72 book value and has raised its dividend each year since coming public at $15 in 2013. Recent share earnings of this Monaco-based company were $1.86. And the current $1.69 dividend, yielding 10.6 percent, may be raised this year.
GasLog Partners (GLOP-$21.50) pays a $1.91 dividend from its $2.13-per-share earnings, yielding 9.3 percent. Also home-ported in Monaco, GLOP owns eight LNG carriers, which generated $202 million in revenues from June 2015 to June 2016. GLOP has $60 million in cash and a book value of $18.45, and its dividend has doubled since the company came public in 2014.
Golar LNG Partners (GMLP-$22.36) pays a $2.31 dividend that yields 10.1 percent. Headquartered in Bermuda, GMLP owns four LNG carriers and six floating storage regasification units under long-term charter in Brazil, the United Arab Emirates, Kuwait and Indonesia. This $439 million-revenue company expects to report higher income and higher earnings this year and will probably raise its dividend to $2.44.
Finally, Hoegh LNG Partners (HMLP-$18.70) is a $95 million-revenue company also home-ported in Bermuda. It owns one floating storage regasification unit and three LNG carriers. HMLP has $20 million in cash, earned $1.47 a share last year and expects to earn $1.91 a share this year. And the $1.65 dividend, which yields 8.7 percent, is likely to be raised to $1.75 this year.
There are a number of other carriers with similar yields, but I've tried to choose four that have the best possibility of maintaining their dividend. Each of these issues has risk that is way above average, but I hope each has success that's way above average.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at [email protected] To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.