Dividends Matter: Tanker Trade Post-Mortem And Total Return Review

Seeking AlphaToday's Market | Market OutlookDividends Matter: Tanker Trade Post-Mortem And Total Return ReviewOct. 6, 2020 10:00 AM ET|| About: Dow Jones Transportation Average Index (DJT), Includes: ASC, DHT, DSSI, EURN, FRO, INSW, NAT, NNA, STNG, TNK, TNP, TRMDby: J MintzmyerJ Mintzmyer Value Investor's EdgeDeep value, stable income via top-tier shipping, MLP, and midstream analysis SummaryThis review will function as a post-mortem of the popular spring 2020 'tanker trade' or 'floating storage trade.' We review performance as well as dissect which types of firms outperformed.
In market theory, dividends are simply an allocation of capital and shouldn't determine multiples; in practice, dividends are a very important determinant for valuation multiples and trade performance.
This brief case study reinforces this fact by examining the performance of tanker stocks from mid-March to 30 September. Dividend payers massively outperformed non-payers.
Relative valuations, balance sheets, market capitalization, and corporate governance all had minimal determinacy on performance.
The tanker trade was awesome (+33% median return in 2 months, while the market was negative), but longer-term allocations did poorly. More commentary below.
The Tanker Trade: COVID-19 + Floating Storage

The tanker trade was a very popular thematic trade in spring 2020 which led to immense trading volumes; one stock in particular: Nordic American Tankers (NYSE: NAT) enjoyed an all-time record daily volume. This 'tanker/contango' or 'floating storage trade' lasted from March 2020 to May 2020 and developed due to a COVID-19-related collapse in global oil demand in early-2020, combined with an initial Saudi 'Oil Price War' initiated on 8 March. I flagged this trade on Value Investor's Edge that weekend in March, and I brought the thesis public on Seeking Alpha on Friday, 13 March.
Crude tanker stocks performed wonderfully from mid-March to end-April, but... Read more