Norwegian Cruise Lines Holdings (NCLH) could be creating a safer harbor for investors in 2019. TheStreet has learned exclusively.
"As we turn to 2019 we are looking to have a more balanced approach of more share repurchases and potentially implementing a dividend" Kempa said. "With us generating $1 billion to $1.5 billion of free cash flow per year, we have a great problem on our hands."
The company announced in 2018 that it would return up to $1.5 billion to shareholders through 2020, a plan it is already one-third of the way to accomplishing.
Kempa explained further that the company's hedging program against increasing oil prices, its lower labor costs based on sourcing from lower-income countries, and strong industry trends bolstered by retiring baby boomers should serve to protect that free cash flow even as the market encounters some turbulence. The resilience to these headwinds should help keep the cash-rich ship on course, in his view.
The company is also pinpointing a plan to expand its footprint and demographic appeal that would further fund the company's ambitious spending plans into the future.
"If you took Orlando and Las Vegas and combined those two destinations alone, there is more rooms there than there is in the entire global cruise industry footprint," Kempa explained. "Only 2% of the world traveling population has been on a cruise, only 8% of North Americans."
Kempa highlighted millennials as a key demographic to target for the company moving forward. The segment of the U.S. population now makes up about 25% of passengers on their fleet, a significant increase from prior years.
The company could be further helped by expansion into the growing Chinese tourism market that appears ready made for cruise tourism.
The company's partnership with Chinese ecommerce king Alibaba (BABA) already gives the company a foothold into the market that is expected to become the world's second-largest cruise market after the United States by 2030 as well. This expansion could be a key storyline for longer term investors.
Kempa touted this very expansion into new markets and demographics as part of his thesis that the company has only penetrated the tip of the iceberg and has smooth seas ahead of it even as competitors like Carnival Corp. (CCL) anticipate a bit of a drawdown amid a tougher economic landscape.
For investors setting sail with the company on that long term plan, a dividend could be a nice perk for market participants to book a trip with and defend against any choppiness ahead.