With a yield of 13%, it’s no wonder there’s been significant interest in the dividend safety of Flex LNG, traded on the NYSE under the ticker FLNG. Let’s dive into what’s happening with this company.
Based in Bermuda, Flex LNG is in the business of transporting liquefied natural gas (LNG) and operates a fleet of 13 ships. Notably, 11 of these vessels are secured under long-term contracts, which many investors might find reassuring.
However, when we take a closer look at Flex LNG’s financials, things aren’t looking so rosy. In 2024, the company did see an uptick in free cash flow, but this is part of a declining trend. Predictions for next year suggest that the cash flow will hit its lowest point since the onset of the pandemic.
The fact that cash flow is on a downward trajectory is particularly concerning for a company that’s committed to high dividend payouts. In 2024, Flex LNG distributed $162 million in dividends, translating to an 88% payout ratio. This rate is uncomfortably high, leaving little wiggle room if cash flow continues to dwindle.
Looking ahead to 2025, with declining cash flow projected at around $152 million, the current dividend might not be sustainable. What heightens this concern is the anticipation of their total dividend payout rising to $176 million, pushing the payout ratio to 116%. Plainly put, for every dollar generated in free cash flow, $1.16 would be handed out in dividends. This math doesn’t add up in the long run.
Rewind to the pandemic’s early days, and Flex LNG had actually suspended its dividend. Since then, they’ve paid out dividends consistently, even with a few increases and special payouts sprinkled in. However, given the current quarterly dividend of $0.75, it appears overly ambitious relative to the company’s cash-generating capabilities. If the financial predictions hold, the company will face a tough choice: either slash the dividend or possibly source funds through increased debt, neither of which is ideal.
In short, the outlook for Flex LNG’s dividend is anything but secure.
Dividend Safety Rating: F
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