New LNG Play With 13% Yield and 40% Upside

Hey Subscriber,

Action to Take: BUY $FLNG Under $25 with $30-$34 target --BUY TODAY Goes ExDividend tomorrow

We have been waiting patiently for Flex LNG (too patiently actually) to increase their nearly 3% dividend to what made sense given the huge demand for LNG imports into Europe and Asia (especially China) and our cash flow estimates.

Well...in the last few days, FLNG raised their dividend by 80%--and if you act quickly--you can lock about a $3 a year dividend and stock with 30%-40% upside (since their 12.8% yield crushes their competition).

FYI while much of the US is having a post-Thanksgiving warming period, Europe and Asia are getting slammed with record cold temperatures--and that is where FLNG delivers LNG

And in a HIGHLY related issue, FLNG just increased its dividend 80% to12% ish and started stock buybacks as well . . . their recent Q3 earnings and forecast deck tells the big story very well.

Here are the highlights:
LNG raised its quarterly dividend to $0.75, from a previous level of $0.40 -- meaning the dividend was hiked 87.5%. This has not been the only dividend raise in the recent past, however, as FLNG has already raised its dividend by 33% in Q2, for example.

With the annualized dividend payout standing at $3.00 on a forward basis,FLNG is now offering a dividend yield of 12.6% ish, based on the current share price of $24 ish. The dividend looks highly sustainable for the foreseeable future, given the strong balance sheet, significant debt refinancing at 2% ish lower rates, and the new longer-term time charters management has agreed recently closed.

Upside Thesis: We assume in a 3-5% dividend world, once more income investors hear about the huge dividend yield that is available in FLNG, increased demand for FLNG's shares could easily propel shares to $30 and above, we believe. Teekay LNG, one of the closest peers of FLNG, trades at just a 6.8% yield today (and was recently acquired).

At a 10% yield, FLNG would trade around $30, while a 9% yield would result in a share price of around $33.

Key point:just a competitive yield of 7% or 8% would see FLNG trade at even higher prices.

Why is FLNG able to achieve much higher financial returns than say Teekay LNG? I called a few friends in Houston where most of the spot and long-term LNG tanker brokerage occurs. While smoking cigars and lighting them with $100 bills (my inference--they are KILLING IT right now), the boys say it is economics 101:
1) FLNG has one of the newest fleets (lowest cost to operate and comply with environmental laws) in the business
2) Teekay LNG is a much older fleet and is now being acquired by a private equity firm (which will undoubtedly dry dock older boats for rehab upgrading) reducing tanker supply
3) Both China, Japan, and European energy producers are buying EVERY LNG load at historically high prices (while Russia's Putin uses the tight natural gas supply to coerce the European Union to OK another natural gas pipeline from Russia directly into Germany). Germany would then become the defacto wholesale nat gas distributor with a 20% ish markup on the Russian gas--that makes LNG shipped from the US cheaper for the energy players in Europe.
4) There has been very little new LNG tanker manufacturing/commissioning with natural gas prices so relatively low 2016-2021.

LNG shipping, like any commodity shipping, is a very competitive space. FLNG remade itself over the down years as a lean, mean, and relatively young LNG player who now finds themselves at the right time with the right product and a durable competitive advantage over the competition.

AND...they will have 2 additional charters coming onstream in early 2022--one leased on a long-term lease and one dedicated to SPOT leases at these historic rates. According to the Q3 management call, that new cash flow will be used to pay down debt, buy back shares, and secure the $3 a year/.75 quarterly dividend.

Final Point: FLNG goes ex-dividend tomorrow--so buy it today!