Ship Finance International Limited
Trailing Dividend Yield: 10.4%
Payout Ratio (based on 2014 earnings): 121%
If you think Ship Finance International Limited’s (SFL) double-digit dividend yield looks too good to be true, you’re probably right.
The company, which owns various vessels and rigs, gave its dividend a hefty haircut in late 2008, axing the quarterly payout in half from 60 cents to 30 cents per share. Since then, SFL’s dividend has recovered 30% to 39 cents quarterly, good for a 10%-plus yield.
However, earnings have been sliding at the same time. During the past five years, Ship Finance’s earnings per share have decreased by just under 10% … per year.
Where does that leave things now? Well, Ship Finance generally pays out the majority of its net income as dividends. Problem is, at 39 cents per share, it’s slated to pay out $1.59 per year to shareholders … yet is only expected to earn $1.13 per share this year and $1.39 in FY14.
Another red flag: Ship Finance’s annualized operating cash flow was nearly sliced in half from 2011 to 2012 thanks to issues at Frontline (FRO), its largest customer.
Right now, SFL’s sweet yield is only helping to make up for 9% year-to-date losses. And eventually, that big dividend will have to give.