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Low-Risk 9% Yield Opportunity In The Teekay LNG Preferred Shares (A)

Published Wed, 21 Nov 2018 02:23:10 -0500 on Seeking Alpha

Teekay LNG Partners (TGP) is one of the largest LNG shipping operators in the world, partially owned and managed by Teekay Corporation (TK). Its fleet consists of 42 carriers with an average age of 6.5 years, compared to an average of 8 years in the industry. This fleet will be complemented by 7 additional carriers that will be delivered in 2019 and a Regas Terminal. Some of these carriers are partially owned.

Even though it may seem a very cyclical business, nearly 90% of the company’s revenues are secured through fixed-rate, long-term contracts with top clients such as Total (NYSE: TOT), BP (NYSE: BP), Shell (NYSE: RDS-A) (NYSE: RDS-B). The following slides show the contracts for the existing fleet and for the new carriers that will be delivered in 2019.

Source: Teekay LNG Q3 Earnings Presentation

Source: Teekay LNG Q3 Earnings Presentation
Let's take a look at the Distributable Cash Flow (DCF) that Teekay LNG will generate this year and the following ones, because it is the variable that matters the most for us.
The following table shows the estimates of JPMorgan (NYSE: JPM). In this case, we can expect a high certainty in results as contracts are already signed. The only variability comes from the two carriers that operate in the spot market, and the 4 contracts that should be renewed before 2021. Nevertheless, as it is shown below, the LNG market is tightened and spot rates are increasing, so this table could even underestimate... Read more

Stock name Last trade   P/E Earnings/Share Dividend/Share Dividend yield
TEEKAY LNG PARTNERS LP 16.05   29.2 0.55 0.76 4.78
TEEKAY 4.42   0.0 -1.53 0.11 2.53