We recently published a list of The 10 best dividend stocks under $5In this article, we will look at how Nordic American Tankers Limited (NYSE:NAT) compares to the other dividend stocks under $5.
Dividends have been a strong source of returns throughout time. These stocks have both theoretical and practical importance in evaluating equity values. Although dividend stocks have lagged the overall market in recent years, their long-term performance remains stable.
Since the beginning of 2024, the Dividend Aristocrats Index – which tracks companies that have consistently increased their dividends for at least 25 consecutive years – has provided investors with returns of over 8%. However, this performance has fallen short of expectations compared to the overall market, which has risen nearly 19% over the same period. Despite this shortfall, 2024 was a favorable dividend year overall. This improvement is largely due to several large technology companies, previously known for not paying dividends, announcing the launch of their dividend programs. In addition, these companies collectively paid out billions in their first dividend payments.
Also read: 12 best dividend stocks for steady growth
The long-term performance of dividend stocks also takes into account periods of high interest rates, when other asset classes typically suffer losses. This does not mean that dividend stocks only perform well during periods of high interest rates. While there is no clear link between their performance and interest rates, historical data shows that they remain relatively stable regardless of the interest rate environment. For example, during certain periods of rising interest rates in the U.S., such as the mid-1970s, dividend-paying stocks outperformed the overall market. Conversely, the performance of high-yield stocks remained relatively stable relative to the market when interest rates fell from the mid-1980s to the mid-1990s. Even if we ignore historical data and focus on more recent performance, we find that increased interest rates have not had a serious impact on the performance of dividend stocks. For example, when the Federal Reserve raised its benchmark interest rate seven times in 2022 to combat persistent inflation—four times in a row by 75 basis points each—dividend stocks outperformed the overall market. This could be because dividend-paying companies tend to be well-established, more stable, and have enough confidence in their cash flows to commit to paying back shareholders. In addition, the obligation to pay dividends forces financial discipline. Instead of using excess cash for acquisitions that may create value, buying back shares at uncertain prices, or funding speculative growth initiatives, executives are forced to manage distributions responsibly.
With investors’ interest in dividend stocks growing, more and more companies are starting to pay and increase dividends. A key driver of this trend is that many companies, especially large technology companies, have significant cash reserves and are rapidly increasing their free cash flows. This strong financial base allows them to reward investors with higher dividends. According to the latest report from S&P Dow Jones Indices, companies included in the index paid $153.4 billion in dividends in the second quarter of 2024, up from $151.6 billion in the previous quarter and $143.2 billion in the same period last year. The report also highlighted that 539 dividend increases were reported, compared to 460 in the same period last year, representing a year-on-year growth of 17.2%. The total amount of these increases was $20.4 billion in the quarter, up significantly from $9.8 billion in the second quarter of 2023. With that in mind, we’ll take a look at some of the best dividend stocks under $5.
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A top view of a crane loading or unloading oil drums from a Suezmax crude oil tanker.
Nordic American Tankers Limited (NYSE:NAT)
Number of hedge fund holders: 8
Share price at the end of August 23: USD 3.63
Nordic American Tankers Limited (NYSE:NAT) is an international tanker company that owns, operates and charters Suezmax tankers. The company’s business model is solid, but is currently being challenged by the ongoing geopolitical tensions surrounding the Red Sea. The stock has fallen over 11% in the last 12 months. Still, there are many positives to focus on.
Supply and demand for Nordic American Tankers Limited’s (NYSE:NAT) fleet are currently favorable, contributing to a positive outlook. In addition, the company has one of the lowest debt levels among publicly traded tanker companies. As of March 31, 2024, the company’s net debt – calculated by deducting current assets from total liabilities – was $228 million. With a fleet of 20 vessels, this equates to debt of $11.4 million per vessel. The company also maintains a low debt ratio of 0.5.
Nordic American Tankers Limited (NYSE:NAT) places a high priority on maintaining its financial health. The company emphasizes strategic timing and careful funding of expansions to ensure financial stability and meet its commitment to paying dividends. The company has paid dividends for 107 consecutive quarters, making it one of the best dividend stocks on our list. It offers a quarterly dividend of $0.12 per share, which yields 11.85% as of August 23. The company expects to increase its distributions as market conditions improve. In addition, its financial position is strong, with operating cash flow of over $37.5 million in the first quarter of 2024.
Insider Monkey’s database for Q2 2024 showed that 8 hedge funds held shares in Nordic American Tankers Limited (NYSE:NAT), compared to 18 in the previous quarter. These shares have a total value of nearly $23 million. With over 2.2 million shares, Two Sigma Advisors was the company’s largest shareholder in Q2.
Total NAT takes 8th place on our list of the best dividend stocks under $5. While we recognize NAT’s potential as an investment, we believe some AI stocks promise higher returns and do so in a shorter time frame. If you’re looking for an AI stock that’s more promising than NAT but trades at less than 5 times its earnings, read our report on the cheapest AI stock.
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Disclosure: None. This article was originally published on Insider Monkey.
