Frontline: Q1 Results Affirm It As A High-Yield Bargain

Frontline reported a strong Q1.
Q2 is shaping up to be even better.
A large dividend increase means the annualized yield is 35%.
Mid-term, the dividend will likely fall but Frontline remains well-positioned to deliver high yield.
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Frontline delivered very strong Q1 results and a big jump in dividend for the second consecutive quarter. This has moved the stock up only slightly and it now has an annualized yield of 35%. But although that yield is unlikely to last beyond the end of 2020, the strength of the company's current business still makes it a good mid-term choice for yield hunters.
There has been a lot of movement and volume in tanker stocks lately, based on the contango trade triggered by historically low oil prices. The market is veering wildly, which opens up some promising opportunities.
The Short-Term Trade in Frontline
At the end of February, Frontline announced its Q4 2019 results – a strong performance which the company said helped demonstrate its potential.
In the past couple of months, Frontline’s share price movements have not focused on its fundamentals. Instead, as this chart shows super clearly, the share price movements have been almost a mirror opposite of the WTI oil price on both ups and downs.
Chart: Frontline share price and WTI oil price

Even after a spurt in tanker stocks following Nordic American Tankers’ CEO’s appearance on CNBC’s Mad Money in late April, Frontline did not make sustained gains.
My hypothesis is that the market is treating tanker stocks including FRO as the inverse of the oil price, rather than understanding that some of the contango gains are locked in weeks or months in advance already regardless of what... Read more