NAT (Nordic American Tankers) reduced it dividend to 0.50 per quarter on a 30 USD stock. It did only lose 6 cents versus consensus 9 cents, but it is a stock mostly held for dividends by small investors. The crude tanker market is in the dumps and all the NAT ships are on spot charters. A very good short, yes? Also, it seems to me that this type of short is the type that provides economic benefit versus say pipe shorting by hedge funds. It was down 90 cents on 08/07 after cutting the dividend so I tried to short at IB. But when I entered the order, IB message was wait while we try to locate the shares. Therefore I tried shorting a few August 25 calls. I think there is a good chance it will be below 25 on Aug. 21, but I do not understand from IB if I can let the options be exercised and then buy back the shares. Record date for the dividend is Aug. 21 so no matter what, if NAT is above 25 on expiration, the options will be exercised. I think bid/ask spread is starting to widen. Is there something I am missing assuming my prediction that NAT will be near 25 in 2 weeks is correct?
The reduction in the dividend is a bad thing yes but these companies(shippers) generally payout a percentage(a high percentage) of net income as a dividend. NAT is a little different beast then the others in this sector as it has no debt. So if you plan on its price falling it would be from a combination of both lower shipping rates and lower asset pricing for Suez/double haul tankers. IMO other tanker company's would be a better option for options as you have the extra protection if you are wrong because inflation will hurt them more on their debt(yields) and increase the cost of operations and likelihood of a home run due to a bankruptcy. If you want to play in the shippers you can get allot of good info from their investor relations websites many give independent analysis on a regular basis. I followed this sector a while ago but never ran across NAT(I do not know why not as it is a 1 billion dollar commpany but I focused on TK and FRO) it is an interesting company and with no debt it allows you to use it as a proxy for the spot market for Suez tankers. Many of which have been turned into storage facilities for arbs. hope I made some sense as it late here and i have had a few already I will re read this tomorrow and add any comments if I think my comments are messed up.
According to the news, NAT beat earnings estimates: (6:24 AM ET) LONDON (MarketWatch) -- Nordic American Tanker Shippingsaid it swung to a second-quarter loss of $137,000, as net voyage revenue dropped to $29.7 million from $63.2 million. It earned $35.5 million in the year-earlier period. It said earnings per share from continuing operations were 9 cents a share. Analysts polled by FactSet had expected earnings of 5 cents a share. The company will pay a dividend of 50 cents per share on or about Sept. 4, 2009, to shareholders of record as of Aug. 21, 2009, down from 88 cents in the first quarter. Also, there seems to be no reason technically why NAT should drop below $25. The only time it's done that was during the market panic last fall and at March lows. It's been trading in a range and even if it breaks down, it will likely work its way slowly through previous support levels of $29, $28, $27 and so on. So, if NAT isn't below $25 on exp the options will be exercised before the market closes because of the dividend. If IB at that time has shares available, you'll be short the stock and will have to cover before market close to avoid paying the .50 cent dividend. This could be a problem for you if NAT trades above the low of its current range. On the plus side, Cramer's been pumping NAT for quite some time now, and is still bullish as recently as yesterday.
Thanks for the comments. I just looked at my IB account and it shows that my current position is 20% short stock and 80% short options. So I think some options were exercised on Friday. For some reason IB does not let me log in to statements during non market hours so I do not know exactly. It does not make sense to exercise this far before xdiv date right? It may just be an IB mistake. I think there is a problem with NAT's no debt approach because they keep diluting the number of shares. In a rising tanker prices and day rate market that makes sense, but I think the dividend per share is coming down since all the NAT ships are not chartered but get spot rates. Spot rates are arguably below cost (the FRO earning report will say for sure). Also, Suezmaxes are not good for storage because the arbitrage has some extra fixed costs so the larger VLCCs are much better. I plan to sell the options (or any short shares) before xdiv date, but I think there is a chance the stock will fall more than just the 0.50 dividend amount. If there is no credit crunch using debt for long term producing assets like tankers is good since it allows higher gearing and better internal rate of return.