Ship Finance International (SFL) has reported its second quarter results for 2017 and has managed to maintain a strong financial position despite weakness in the industry and the imminent restructuring of Seadrill (SDRL), one of its partners.
Seadrill's situation has created an overhang of uncertainty over Ship Finance International, but we believe the market has already baked in most of the possible negative impact. Ship Finance International is a good way to bet on a recovery in shipping because its 10% dividend yield is well covered by EBITDA. Cash flow is respectable, and the company has a strong liquidity position.
Ship Finance has a dividend yield of over 10%, and it declared its quarterly dividend of $0.35 per share with an EPS of $0.22 per share. This is a negative payout ratio that raises questions about the sustainability of the dividend. However, SFL's TTM EBITDA and cash flow indicate that the dividend situation is much better than it looks on the surface.
For the trailing twelve months, SFL generated $471 million in adjusted EBITDA-equivalent compared to a $159 million total dividend pay out. The majority of EBITDA goes towards net interest payments and loan amortization as the company aggressively pays down its debt ($178m in loan amortization of the last 12 months). $182 million in distributable cash is left over, $23 million more than the $159 million dividend.
Ship Finance International has a strong liquidity position with $249 million in cash and cash equivalents in addition to $111 million in liquid securities. The company also has good access to credit financing with $29 million in revolving credit facilities. $75 million in bank financing was obtained in the quarter, and the equivalent of around $63 million in unsecured bonds was issued in Norwegian currency and converted to USD at 6.9%.