At this year’s Delivering Alpha conference, where the market heavyweights come together to talk about the economy and stocks, billionaire Leon Cooperman was one of the heaviest of weights.
When he speaks, the market listens.
This 71-year-old billionaire has been running his own hedge fund, Omega Advisors, for over two decades. Omega Advisors posted gains of 25% back in 2012. Cooperman’s fund followed up that performance with a 30% gain last year.
At Delivering Alpha, Cooperman said, “Income is like sex, when it’s bad it’s good and when it’s good it’s really good.”
Cooperman has long been a fan of income stocks, but he’s also great at finding deep value investments. That’s because Cooperman “has no hobbies, no anything. This is what he does,” according to Michael Lewitt of The Credit Strategist.
Cooperman’s latest find is a near-double-digit-yielding play on offshore drilling. Nordic American Offshore (NYSE: NAO) debuted on the NYSE back in June. It’s offering a $0.45 per share quarterly dividend, putting its dividend yield at 9%.
Cooperman bought up 21.8% of the company in June. He also made it one of his recommendations at Delivering Alpha. And it just so happens that his picks at this conference end up doing pretty darn well.
Back in 2012, all 10 of Cooperman’s Delivering Alpha recommendations were up over the next year. Then in 2013, eight of his 10 picks were up.
Nordic American Offshore is a spinoff from Nordic American Tanker (NYSE: NAT), which still owns 26% of the company. Nordic American Tanker is an international tanker company that offers a 5% dividend yield.
Back to Nordic American Offshore, which owns and operates platform supply vessels (PSVs). PSVs are the ships that are used to transport supplies and equipment to and from offshore drilling rigs. All eight of its current PSVs are in the North Sea. By 2015, it’s expected to be operating 10 PSVs in the North Sea.
The fact that Nordic American Offshore operates in the North Sea is a competitive advantage for the company. The North Sea is a very challenging offshore territory, given the harsh-weather environment. And the North Sea drilling is expanding into the Arctic territory, which increases the need for PSV operators with harsh-weather experience.
The PSVs operated by Nordic American Offshore are larger and have superior safety standards than the typical PSV.
Nordic American Offshore uses a short-, medium- and long-term approach when it comes to managing its PSVs. Three of its vessels on short-term lease are with Norway’s oil giant, Statoil, and the lease includes options to extend.
It also provides services to Apache Corp. and BG International. Short-term contracts have an average duration of two years and rates that range from $25,000 to $30,000 per day. Meanwhile, its break-even rate is $12,000 per day.
While its near-term plans include focusing on the North Sea, it’s set to grow into other markets longer term. Its debt to capital ratio remains a low 11%, leaving plenty of capacity to grow its fleet. Compare that to its top peer, Tidewater, which has a 36% debt to capital ratio.
In the medium term, Nordic American Offshore could look to diffuse into the Barents Sea. Then, over the long term, the company could look to expand into the bustling Brazil and West Africa markets.
The difference for Nordic American Offshore and its peers is that Nordic plans to return all its cash flow as dividends. Hence its 9% dividend yield, which is well above the other vessel operators you’ll find in the industry. This includes Tidewater’s 2% yield and GulfMark Offshore’s 2.4%.
Nordic American Offshore is not an income investment for everyone, but for those with an ability to stomach the treacherous North Seas, it could be very rewarding.
Deepwater Drilling for Dividends
Discover a company that’s drilling into the largest oil reserve in the Western Hemisphere… deep under the Atlantic Ocean. With every barrel of crude oil that it unearths is adds to the massive dividends that it pays its savvy investors. This is the only company that has the high-tech rigs and the sole rights to drill the “Saudi Arabia of the Sea.” And the best thing is…It’s paying out bigger dividend than Exxon and BP. It’s highly profitable and rewards shareholders with unannounced “bonus” dividends. And it pays them out every quarter. That’s on top of its regular, scheduled dividends — meaning shareholders are collecting 8 dividend payments a year, all from this one investment.