SFL Corporation (SFL) has long been one of those “yeah, it’s okay … I guess” stocks for me. I have never been all that impressed with management, and ship leasing is a tough business, but the dividend yield had been pretty solid and investing in ship leasing is a viable alternative to trying to pick winners in the even more challenging shipping sector.
Still, the results are what they are. With these shares recent having hit a decade-plus bottom in January (from which they’ve bounced 40% already), the 10-year annualized return with reinvested dividends is just 1.8%, while the five-year annualized return is 0.3%. I would also note that 2020 makes for the fourth straight year where dividends were flat or down (down in 2017, 2018, and 2020), and the current $0.60/share payout is one-third of the 2016 payout on a broadly similar revenue base.
I get that successful investing requires an investor to be fearful when others are confident and bold when others are fearful. To that end, the shares do look undervalued on cash flow even with minimal revenue growth, though the unpredictable pattern of capex to build the fleet is a key issue, and I believe there is room to both improve the payout and reduce debt further (and/or make fleet additions). Still, even with potentially outsized upside potential, I struggle to buy/own shares in companies where I just don’t have that much confidence in management’s ability to generate attractive long-term economic returns.
Read more here:
SFL Still Generating Free Cash Flow, But Management Needs To Rebuild Investor Confidence
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