What happened
Shares of ocean-going oil tanker company Nordic American Tankers(NYSE: NAT) soared in afternoon trading Tuesday, rising 10.2% through 1:30 p.m. ET after receiving an upgrade from investment bank Jefferies Group -- more than enough of a gain to reverse the stock's losses after the company reported earnings last week.
So what
As ratings-watcher The Fly reports, Jefferies upgraded Nordic American Tankers stock to buy and raised its price target on the stock by 33%, to $4 per share.
The analyst explained the move by noting that spot rates for chartering both "very large" and "ultra-large" oil tankers have reached "healthy levels" in a market where the supply of tankers is tight, and likely to get tighter as European Union bans on imports of Russian oil disrupt established tanker traffic patterns.
At the same time, Nordic American is working to increase its share of this constrained market for oil shipping. After shrinking its fleet to "about 20 vessels," management says it plans to grow its fleet size over the next three years -- and grow its dividend payout as well.
Now what
That's probably music to income-seeking investors' ears, seeing as Nordic American already pays an above-market dividend yield of 2.9%. And Nordic can probably afford to raise its dividend.
As I pointed out last week, Nordic American Tankers isn't currently a profitable stock. However, with charter rates on its tankers up more than 100% since the start of this year -- and continuing to move higher -- analysts are forecasting that for the first time in two years this company will turn profitable in the third quarter.
More profits means more ability to pay a higher dividend. That may be Jefferies' conclusion, too, and the reason it's upgrading today.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Jefferies Financial Group Inc. The Motley Fool has a disclosure policy.
