The Board of Frontline Ltd. (the “Company” or “Frontline”) announces that it has agreed to acquire the VLCC “Front Vista” (the “Vessel”) from Ship Finance International Limited at a purchase price of USD 58.5 mill.

Frontline has furthermore agreed to sell the Vessel and the Buyer will settle the purchase price through the payment of instalments over a 10 year period. The Buyer has secured a 10 year time charter with a State owned oil company at a gross rate of USD 43,500 per day during the entire charter period.

The transaction reflects the Company’s goal of securing long term coverage for parts of its fleet.

I am not certain who is collecting the $43k per day: Frontline or the buyer? Hope Ship Finance made out OK as I own stock in SFL.

OK, just got the email from Ship Finance, here is a exerpt:

Ship Finance will receive net proceeds of approximately $22.1 million after prepayment of associated debt. The sale is expected to result in a book gain on sale of assets of approximately $1.8 million.

A couple of comments on the above linked tanker market summary. Nice to see VLCC rates back above $85k. They averaged $25k for all of 2009.

There are only 50 VLCC tankers available in the Arabian Gulf for the next month. Typically, 90 of the big tankers are needed each month so spot rates could move significantly higher.

I am going through the list of dividend paying shipping stocks alphabetically and here is the next bunch:

Frontline Ltd FRO earns its revenues by contracting the majority of the company’s tanker fleet on the spot market. This leads to tremendous fluctuation on the quarterly dividends, but also very high payouts when tanker rates are good. In this decade the quarterly payouts have ranged from nothing to $5.00 per share. Over the last 3 calender years the distributions have averaged $6.25 per share. The spot tanker market has been very tough during the worldwide economic slowdown and FRO has paid only 25¢ for each of the last 2 quarters.

General Maritime Corp. GMR has a target quarterly dividend of 50¢ per share. The company has been paying this rate since paying a one-time dividend of $15.00 in early 2007. Cash flow (earnings + depreciation) seems more than adequate to allow continued payouts at this rate. The stock seems a little undervalued.

Horizon Lines HRZ has been paying 11¢ per share since at least the 3rd quarter of 2005. This U.S. flagged container company is struggling in the current economic slowdown. The 12% dividend yield could be tempting to anyone anticipating a near term recovery in U.S. economic activity. Current cash flow may not be enough to sustaing this dividend, so watch this one carefully.

I think you can see from these 3 stocks that the stability and quality of the dividends varies greatly in the shipping sector. GMR at a 20% yield seems like a steal to me, but I urge you to do your own research. When the market pushes stocks to these kind of yields something bad (dividend cut) often happens. The other side is that the market will lump the FROs with the GMRs even though they have very different ways of earning their revenues and an astute investor will find a gem.

To stretch this out and give me something to write about for a few days I am going the write about these stocks in groups of 5. I will start with the lowest dividend returns for the half and work up the the largest cash payout.

Here are the bottom 5 payors on my list. The stocks are listed in this order: Company and stock symbol, dividend earned on $1000 invested on 1/1/2009 (divide by 5 to get an annualized percentage) and the share price change since the beginning of the year.

• Frontline Ltd.FRO, $17.00, -18.8%
• Knightsbridge Tankers Ltd., $19.04, +7.5%
• Paragon Shipping, Inc. PRGN, $21.00, +16.0%
• Overseas Shipholding Group, $21.00, -16.7%
• Teekay Corp.TK, $32.26, -13.3%

Tanker companies are the bulk of this group with only Paragon as a bulk shipper. FRO and VLCCF typically payout a high percentage of the free cash flow they earn in the tanker spot market. That market has been very depressed for the last 5 months or so. Knightsbridge paid only a single dividend during the 1st half of 2009 and elected not to make a payout after 1st quarter earnings were very low. OSG and TK have more stable revenues and payout a conservative portion of earnings.

Paragon Shipping was paying 50¢ per share until the dry bulk market and values collapsed. Instead of suspending the dividend like many others in the sector, Paragon’s management elected to keep paying a dividend a 5¢ per share.

Remenber whe looking at dividends from shipping companies that the different companies in the sector can have significantly different payout policies. Some have payouts that vary significantly from quarter to quarter and others strive for a more stable payout policy. Make sure you know what you are getting before investing in one of these companies.

Frontline Ltd. FRO has released their first quarter results and it was another tough quarter for the world’s largest tanker company. The company did stay profitable, earning 98¢ a share in Q1. They declared a 25¢ dividend, the same payout as the 4th quarter of 2008. For the same quarter of 2008, FRO earned $2.95 a share and paid a $2.75 distribution.

In the quarter they earned a average of $50,300 per day on the VLCCs, $37,900 on Suezmax vessels and $44,200 on OBOs (oil/bulk/oil). For comparison, in the conference call management gave these numbers.

The big news was on the fleet front. So far this year Frontline has taken possession of 2 new VLCC tankers. They have also cancelled their orders for 2 more VLCCs and 4 Suezmax tankers. Remaining newbuilds on order are 6 VLCC and 4 Suezmax. In comparison, the company currently has 7 single hull VLCC and one single hull Suez that must leave service in 2010. The new build orders will not all be completed until 2012. The balance due for the ships on order is approximately $700 million, to be paid over the next 4 years.

With the current forward visibility of the revenues currently chartered, Frontline should be able to meet their financial obligations and stay marginally profitable. Spot rates in the tanker sector are currently very low and falling global oil demand does not point to a rate rebound in the forseeable future. They majority of the analysts who follow FRO are calling for target prices below $20.

Remember, when tanker rates are high Frontline can pay huge dividends. They paid over $12 per share in 2004 and over $6 every year since. I will close with this quote from today on the Ton Mile Trader:

Tanker types should note what is going on in the dry bulk sector. The upturn could be nothing more than a short lived phenomenon – but, dry bulk was considered dead and buried only months ago…and yet, it has risen once again from the deep dark bilges.