Seven months have passed since we added three oil and products tanker operators to the MLP Profits Aggressive Portfolio. As predicted then, tanker charter rates have since continued to increase, driven by increased offshore storage as well as shipping demand. Low energy prices and new trade routes have soaked up much of the spare capacity in this long-depressed industry. Low fuel costs have also produced considerable operating cost savings for ship owners.

As a result, many of the tanker stocks have powered ahead, even as the market remains worried that fleet growth next year and in 2017 will spoil the party.

Such walls of worry can add staying power to rallies, and appear to be helping a couple of our current picks. Fuel products tanker operator Scorpio Tankers (NYSE: STNG) has by now returned 37% since mid-December, while crude tanker owner Teekay Tankers (NYSE: TNK) is up more than 30% over the same span.

The clear laggard of late has been Capital Products Partners (NASDAQ: CPLP), now up just 3% since our recommendation after coughing up a big early lead.

Today we’re adding two more picks to our growing tanker flotilla.  Both have timed this market resurgence just right with discounted acquisitions and a high degree of exposure to rising spot rates.

EuroNav (NYSE: EURN) is among the leading crude tanker operators worldwide with 27 VLCCs, 23 Suezmaxes, one V-Plus super-super-tanker and two FSOs (tankers turned into floating storage platforms.)


The company is headquartered in Belgium and staffed by Europeans; its tankers steam under the Belgian, French and Greek flags. The controlling Belgian family has a merchant shipping history dating back to the 19th century. It has long partnered with Greek shipping tycoon Peter Livanos, the sponsor of GasLog (NYSE: GLOG) among other shipping interests and scion of an even richer merchant clan.

Previously listed on Euronext, EuroNav staged a successful New York public offering in January, using the proceeds to cover some of the tab for the well-timed acquisition a year earlier of 15 VLCCs, at a bargain price of $980 million.

Last month it swooped in again to buy four brand new VLCCs set to be launched from shipyards in the near term, with options on four more at a combined price approaching $800 million.

The fleet already on the water delivered net income of 55 cents per share in the first quarter, and seems likely to produce something similar in second-quarter results due July 30. The company recently pledged to pay out 80% of net annual after-tax income via dividends. Extrapolating the first quarter’s results over a full year, EuroNav might deliver $1.76 in dividends in 2015 (with an interim dividend in September and a final payment next May.) At the current share price, that works out to a prospective yield of close to  11%.


Other things to like about EuroNav are its scale, participation in a top VLCC chartering pool and the fact that fleet management and operations are not subcontracted to a separate affiliate of the sponsor.

The stock has rallied more than 30% in less than six months since its New York IPO, but has much further to go.  

We’re adding EuroNav to our Aggressive Portfolio. Buy EURN below $18.

DHT Holdings (NYSE: DHT) is a smaller crude tanker operator incorporated in the Marshall Islands, headquartered in Bermuda and managed by Norwegians from Oslo.

Like EuroNav, it manages and operates its ships in-house rather than outsourcing those functions to related parties.

Also like EuroNav,  DHT made a big acquisition on the cheap last year just before charter rates took off. In acquiring a Singapore-based owner of seven VLCCs for the bargain basement price of $325 million, DHT doubled the VLCC component of its fleet, which now includes the 14 VLCCs, two Suezmaxes and two Aframaxes. Six more VLCCs are on order for delivery before the end of 2016.

In the first quarter of 2015 DHT doubled its EBITDA from the fourth quarter of 2014 and comfortably exceeded its earnings from the entire prior year. It also tripled its quarterly dividend to 15 cents per share for a projected annual yield above 7%, and could have paid out double that based on its cash flow.

Despite the tremendous improvement in the fundamentals, the share price is up a modest 12% from the highs of last August. Though DHT Holdings has less exposure to spot rates than EuroNav, like all tanker stocks it’s for aggressive investors only. Buy DHT below $10.

As for our prior tanker stock recommendations, we’re sticking with Capital Products Partners despite its disappointing performance. It remains exactly what we said it was last winter: a combination play on products tankers and the smaller crude carriers currently yielding almost 13% based on cash flow fully covered by the recent charter rates, with room for more. Buy CPLP below $10.

We’re also maintaining our full position in Scorpio as it continues to profit from the ongoing rapid expansion, but are keeping the buy limit well below the current price until we know more about its plans to return capital once fleet growth slows.

The earnings leverage also remains attractive at Teekay Tankers, which in the last quarter posted more than 19 times the net income required to cover its modest dividend, currently yielding 1.6%. But the company is more focused on paying down debt than boosting its payouts at this point, and we’re happy to take profits after the stock’s strong gains to date. Sell half of your initial stake in TNK.