TNK - SFL Corporation: An Attractive Dividend Yield Of 9.53%

Summary

• SFL Corporation Ltd. operating Q4 revenues were another record of $197.82 million, compared to $152.06 million in the same quarter a year ago and up from $166.89 million in 3Q22.
• The SFL Corporation Board of Directors has declared an increased quarterly cash dividend of $0.24 per share.
• I recommend buying SFL Corporation between $10 and $9.7, with lower support at $9.25.

Introduction

SFL Corporation Ltd. (NYSE: SFL ) released its fourth quarter 2022 results on February 15, 2023.

Note: This article is an update of my article published on November 15, 2022. I have followed SFL's quarterly Seeking Alpha results since Sept. 2014.

1 - 4Q22 Results Snapshot

SFL Corporation Ltd. reported a quarterly income of $0.36 per diluted share compared to $0.63 per share in the same quarter a year ago.

It was another strong quarter for SFL Corporation Ltd. with a new record in revenues. The company's total U.S. GAAP operating revenues on a consolidated basis were $197.82 million in 4Q22, compared to $152.06 million in the previous year's quarter.

Note: This figure is lower than the cash received as it excludes revenues from charter hire, which are not identified as operating revenues U.S. GAAP. More details later in this article. The cash revenues received in 4Q22 were $209.62 million.

The company increased its quarterly dividend to $0.24 per share this quarter. The dividend yield is now 9.53%.

Adjusted EBITDA on a consolidated basis was $135.36 million (including the 49.9% owned associated companies), up from $121.30 million posted the same quarter a year ago.

According to the press release:

As of December 31, 2022, and adjusted for subsequent transactions, the estimated fixed rate charter backlog from the Company’s fleet of 77 wholly or partly owned vessels and new buildings under construction was approximately $3.6 billion with a weighted remaining charter term of 6.6 years.

The backlog is down slightly this quarter, but still at a healthy level.

2 - Investment Thesis

I am a long-term SFL shareholder and have trusted the company through good times and uncertain times. However, even in the most challenging situation, management could keep a high-level distribution to shareholders.

CEO Ole Hjertaker said in the press release:

we have continuously demonstrated our ability to both renew and diversify our portfolio of assets and charters, supporting a sustainable long term distribution capacity.»

A great advantage for investors is that SFL is not too specific and can adapt faster than a company focusing on a smaller niche. When a business segment is not performing well, the company can quickly shift to another business and adapt. We have seen it playing with Seadrill, for example. Every cloud has a silver lining, and management has done great.

Versatility is crucial in the shipping business and gives the company enough time to modify its business model while maximizing future profit.

Thus, the investment thesis continues to be the same as my preceding article, and I recommend SFL as a long-term investment.

However, I suggest trading short-term SFL using at least 30% of your entire position to fully profit from this volatile and ever-changing industry. This two-level strategy has prevailed in my marketplace, "The Gold and Oil Corner," and I believe it is the most rewarding.

3 - Stock Performance

I generally compare SFL to three other companies I follow on Seeking Alpha. Teekay Tankers ( TNK ), Scorpio Tankers ( STNG ), and Frontline plc ( FRO ). However, this comparison is not totally accurate because they are pure Tankers companies and are not entirely comparable with SFL, which owns a tankers fleet representing 22% of its total fleet.

This difference explains why SFL is underperforming the Tankers group, especially Teekay Tankers and Scorpio Tankers, up 284% and 244%.

SFL stock is up 19% on a one-year basis.

SFL Corp.: The Raw Numbers: Fourth Quarter Of 2022 And Financials History

Source: SFL release .

Analysis: Revenues, Earnings Details, Free Cash Flow, And Backlog Discussion

1 - Operating revenues were $197.82 million in 4Q22

1.1 - Revenues and others

SFL Corp. received a charter hire of approximately $209.62 million from the Company's vessels and rigs, including $11.80 million in Gain on the sale of assets and termination of charters.

CEO Ole Hjertaker said in the Q4 press release :

SFL is pleased to announce yet another strong quarter, with growth in both revenues and EBITDA. Throughout 2022, we have continued building our portfolio through a combination of new long term charters on existing vessels and new acquisitions, increasing our fixed rate charter backlog to approximately $3.6 billion.

The company had $48.45 million in income for the fourth quarter of 2022, or $0.36 per diluted share (estimated).

Adjusted EBITDA was $135.36 million, up 11.6% from last year.

1.2 - Highlights during 4Q22 (press release)

• 76th consecutive quarterly dividend declared, increased to $0.24 per share Net profit of $48.5 million, or $0.38 per share in the fourth quarter
• Received charter hire of approximately $208 million in the quarter, incl. $6.9 million of profit share
• Adjusted EBITDA2 of $127.5 million from consolidated subsidiaries, plus an additional $7.9 million adjusted EBITDA from 49.9% owned associated companies
• Four new vessels delivered during the fourth quarter, all with long term charters to leading bluechip customers
• Agreed sale of a 2009-built Suezmax crude oil tanker with expected delivery in the first quarter

Note: source press release.

1.3 - The quarterly dividend is up to $0.24 per share in 4Q22, an increase of 4.3% sequentially.

It is still a historical low for the company, but we see definitive progress on this side, with a yield now of 8.85%.

2 - Free cash flow is a loss estimated at $119.97 million in 4Q22

Trailing 12-month free cash flow ("ttm") is a loss of $247.38 million, with a free cash flow loss estimated at $119.97 million in 4Q22.

The loss in free cash flow can be explained by the significant CapEx used by the company to expand and adapt constantly. In this case, the loss is not necessarily a negative. CapEx was elevated this quarter at $228.48 million. However, free cash flow has been underwater for three of the last four quarters, and it starts to be a bit concerning.

3 - Debt analysis: Net debt is estimated at $1,890 billion in 4Q22

4 - Segment Analysis

4.1 - The offshore segment

SFL owns two HE rigs. The semisub West Hercules and the support jack-up West Linus have been chartered to Seadrill since 2008 and 2014.

During the fourth quarter of 2022, SFL received a charter hire of $18.6 million of charter hires for the rigs. In addition, SFL received a $10.5 million payment relating to catch-up payments for previously reduced charter hire from Seadrill during Chapter 11. The semi-submersible rig Hercules will undergo its scheduled special periodic survey in 1Q23 and is currently being marketed for new charter opportunities from 2Q23 onwards, which will be an easy task. The cost of the SPS is estimated at $50 million.

4.2 - SFL dry bulk segment

The Company has 15 dry bulk carriers, of which eight were employed on long-term charters in the quarter.

SFL generated approximately $23.7 million in gross charter hire from the dry bulk fleet in the fourth quarter, including a roughly $0.4 million profit share. The seven vessels employed in the spot and short-term market earned approximately $9.0 million in net charter hire during the fourth quarter, compared with roughly $10.2 million from six vessels in the previous quarter.

4.3 - Tankers segment

SFL has a fleet of 18 crude oil, product, and chemical tankers, including announced transactions, with the majority employed on long-term charters. The vessels generated approximately $49 million in gross charter hire during the quarter.

SFL had two Suezmax tankers and two chemical tankers trading in the spot and short-term charter market. These vessels earned net charter hire of approximately $12.1 million in the fourth quarter, compared to roughly $11.5 million in the third quarter.

In 4Q22, the Company completed the acquisition of four modern Suezmax tankers in combination with six-year time charters to a subsidiary of Koch Industries, adding approximately $250 million to SFL’s fixed-rate charter backlog.

After the quarter ended, SFL agreed to sell a 2009 built Suezmax tanker for a net sales price of approximately $39 million.

4.4 - Liners segment

SFL has a liner fleet of 36 container vessels, including announced transactions and seven car carriers, of which four are under construction.

The liner fleet generated approximately $99 million in gross charter hire in the quarter. Roughly $6.5 million of the hire was a profit share from fuel savings.

As of December 31, 2022, the estimated fixed-rate charter backlog from the wholly and partly owned liner fleet was approximately $2.4 billion, with an average remaining charter term of about 4.5 years or 7.3 years if weighted by charter hire.

Technical Analysis (Short Term) And Commentary

Note: The graph has been adjusted for the dividend.

SFL forms an ascending channel pattern with resistance at $10.75 and support at $9.95.

Ascending channel patterns or rising channels are short-term bullish in that a stock moves higher within an ascending channel, but these patterns often form within longer-term downtrends as continuation patterns. The ascending channel pattern is often followed by lower prices,

The overall strategy I regularly promote in my marketplace, "The Gold And Oil Corner," is to keep a core long-term position and use about 35% to trade LIFO while waiting for a higher final price target or enjoy a dividend yield of nearly 9.53%.

The trading strategy is to sell 35% between $10.65 and $10.80 with higher resistance at $11.25 and wait for a retracement between $10 and $9.7 with lower support at $9.25.

Warning: The TA chart must be updated frequently to be relevant. It is what I am doing in my stock tracker. The chart above has a possible validity of about a week. Remember, the TA chart is a tool only to help you adopt the right strategy. It is not a way to foresee the future. No one and nothing can.

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