In general, dividend investors have a conservative approach. The focus is on blue-chip stocks with a good track record of dividends. However, some high dividend-yield stocks do not represent blue-chip companies. Yet, the valuation and yield are attractive enough for investors to consider some exposure, with these companies having average to good fundamentals.
This column focuses on three high dividend-yield stocks that look attractive at current levels. Besides providing a dividend yield of over 10%, these stocks are also massively undervalued. In my view, the total returns in these dividend stocks to buy will likely be 100% in the next 12 months.
I must add that the companies discussed here are in the business of seaborne transportation of goods. That includes liquefied petroleum gas, crude oil, and dry bulk carriers. The reason is the attractive time charter rates for these vessels in the recent past. As a result, EBITDA margin and cash flows have been robust. Those factors have translated into healthy dividends and improvement in credit metrics for these high dividend-yield stocks.
Avance Gas (AVACF)
Avance Gas (OTCMKTS:AVACF) stock is attractive for two reasons. First, the stock offers a dividend yield of 16.5%. Further, AVACF stock is deeply undervalued at a forward price-earnings (P/E) ratio of 6.4. I expect 100% total returns from the stock in the next 12 months.
As an overview, the company transports liquefied petroleum gas (LPG). With healthy time charter rates, the company is positioned for robust cash flows. For Q1 2023, Avance reported a time charter rate of $58,400 daily. With per day operating expense at $8,626, the EBITDA margin has been strong.
It’s also worth noting that as of Q1 2023, Avance reported cash of $220 million. Additionally, the company’s loan-to-value was low at 55%, providing high financial flexibility for new vessel acquisition.
From an industry perspective, LPG exports from the U.S. will continue to increase. With long-distance trade to emerging markets, the outlook for LPG carriers is positive.
Nordic American Tankers (NAT)
Nordic American Tankers (NYSE:NAT) stock is another name that holds potential. The 16.0% dividend yield stock trades at an attractive forward P/E ratio of 5.7. This is another stock where I expect 100% total returns in the next 12 months.
Nordic American is also engaged in seaborne transportation services. However, the company uses its product tankers to transport crude oil. With geopolitical reasons being a key factor, the shipping market for LPG, crude oil and other petroleum products has been healthy.
To put things into perspective, Nordic reported the best time charter rate in 28 years at $51,902 per day per ship. With operating costs being $8,000 per day per vessel, the company’s cash flows have been vigorous.
An important point to note is that the company’s debt per ship stands at $8.9 million as of Q1 2023. That provides the company with the flexibility to increase dividends. At the same time, there is room for fleet expansion.
Star Bulk Carriers (SBLK)
Star Bulk Carriers (NASDAQ:SBLK) is engaged in transporting dry bulk cargo globally. While the stock has declined by nearly 10% for the year, a strong reversal rally seems imminent. At a forward P/E ratio of 5.9, the stock seems undervalued. Plus, SBLK stock offers a strong dividend yield of 22%.
Star Bulk currently has a fleet of 132 vessels with an average age of 10.7 years. For Q1 2023, the company reported a time charter equivalent rate of $14,199 per ship. With an operating cash flow of $83.2 million for the quarter, dividends are secure.
Additionally, it’s worth noting that Star Bulk reported adjusted net debt of $855 million as of May. In the last three years, the company has reduced debt by 49%. During the same period, the company’s liquidity buffer surged. If day rates remain attractive, credit metrics will improve on the back of deleveraging.
I must add that global GDP growth is likely to accelerate in 2024 compared to 2023. That will boost the demand for dry bulk cargo carriers.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
