General Maritime Delivers a Dividend

This kind of strategy signifies to investors that management has run out of ideas in how to grow its business internally. Early in the business cycle, companies tend to retain profits and invest them back into their operations to grow in size. Once a company's organic growth begins to slow, management focuses on expanding through investing in new areas or making acquisitions. A company generally doesn't decide to offer a dividend until it no longer pays to try to grow the business.

But General Maritime will be holding back $100 million of its earnings to maintain and expand its asset base, and said it remains interested in making small acquisitions down the road. The company's 33% debt/capital ratio is also at the low end of the industry range, so it can add debt to finance acquisitions if necessary. Even so, the company acknowledges that industry valuations have risen, and so was looking to attract the premium valuation that the other dividend payers in the tanker business currently command.

This strategy isn't unprecedented, as Bermuda-based shipper Frontline (FRO Quote) has been aggressive with its dividend over the past two years, recently yielding 18.6%. Some of General Maritime's other new high-yielding peers include Nordic American Tanker Shipping (NAT Quote), Knightsbridge Tankers (VLCCF Quote) and November IPO Arlington Tankers (ATB Quote), all of which yield in a range between 7% to 13%.

So why choose General Maritime? For one thing, according to Morgan Stanley analyst Mark MacLean, the company trades at a discount to its peers on a net asset value basis. In addition to its above-average dividend, General Maritime could also trade into the low- to mid-$50s from its recent stock price of about $47.80 a share, or 150% of its estimated $35-a-share asset value. This is in line with the valuation of its peer group, providing investors with a potential 20% total return in General Maritime over the next year.