General Maritime Delivers a Dividend

General Maritime (GMR Quote) told investors on Jan. 26 that it would begin paying a cash dividend. On its own, this isn't earth-shattering news, as it seems like at least one company each week has initiated a payout since Congress passed the new 15% maximum dividend tax rate in May 2003.

Even so, when the energy tanker operator said its expected yield would be 18%, or about 10 times what the average S&P 500 stock offers, the company had my full attention.

General Maritime is a leading energy transporter in the Atlantic Basin, with a fleet of 47 tankers. More than 80% of the company's ships operate in the spot market, in which volume and rates are dependent on current customer demand, rather than predetermined contractually.

On a quarterly basis, General Maritime plans to return to investors any earnings before taxes, depreciation and amortization that top $100 million; that amount will be reserved annually for maintenance and fleet renewal expenses. The company said it will declare its first dividend after reporting first-quarter results at the end of April.

General Maritime's current bond covenants in its debt contracts limit dividend payouts, but management is seeking to amend these rules, or could eliminate the debt altogether by April.

Even though the stock has moved 20% higher since the announcement, I believe that the stock remains an attractive investment for income-oriented investors. While the company's payment could be volatile as the energy industry goes through its up-and-down cycles, shareholders should still receive a steady, tax-advantaged income over time.

According to Jefferies analyst S. Magnus Fyhr, General Maritime would pay a dividend of $5.76 a share in 2005 (12.1% yield), based on a five-year average of tanker charter rates. Management estimated in a conference call with investors that during General Maritime's worst year, it still generated $240 million of annual EBITDA. That equates to about $3 a share of dividends, or a 6.3% yield at current levels.