Why Income Investors Should Invest in John Fredriksen Companies

A key investing principle here at the Fool is to find great companies led by innovative and dedicated founders -- then invest alongside them for the long term. Heavy inside ownership is seen as a major benefit and gives us confidence that the interests of investors and management are aligned. The technology sector is famous for innovative, founder-led companies, with the most prevalent examples being Amazon,Tesla, Google, and Netflix. For yield-hungry income investors in the energy space the options seem slimmer, with only Kinder Morgan's empire of companies and MLPs meeting this criteria. However, there is a lesser-known giant of income investing, one whose innovative spirit and entrepreneurial genius rivals any of the above company's founders. This article is designed to introduce investors to one of the world's most successful capitalists and begin a series of articles highlighting his high-yielding, high-quality empire of income stocks, investments that could make long-term investors very wealthy.

John Fredriksen: the modern day Poseidon 
To investors who know of him, John Fredriksen seems like the god of the sea. From his humble roots as the son of a Norwegian welder, Fredriksen has built one of the largest seaborne empires in the world and is today, at a net worth of $14 billion, the 78th richest person in the world.

A truly self-made billionaire, John started off as a shipbroker in Norway, but in his 20's struck out on his own. In the 1960's he began trading oil in Beirut, Lebanon and bought his first oil tankers in the 1970's. During the Iran/Iraq war of the 1980's he was one of the few tanker owners brave enough to continue operating in the region, despite the danger to his ships. Due to the extraordinary profits Fredriksen was able to garner during that decade, in the 1990's he was able to found FrontlineLTD, which went on to become the largest oil tanker company in the world. From that high point, he diversified his empire by founding Seadrill, Ship Finance International, Golden Ocean, Golar LNG, Deep Sea Supply, and Marine Harvest

In 2006, Fredriksen gave up Norwegian citizenship in order to become a citizen of Cyprus. This was because Cyprus imposes no taxes on dividends generated outside the country. 

This fact, in addition to his heavy ownership stakes in the companies he's founded (he owns 21% of Seadrill, which pays him $400 million/year in dividends), is why Fredriksen companies are famous for having some of the highest yields on the market. 

  • Seadrill Limited: 11.2%
  • North Atlantic Drilling: 10.6%
  • Ship Finance International: 9.1%
  • Seadrill Partners: 6.7%
  • Golar LNG Partners: 6.7%
  • Marine Harvest: 6.1%
  • Frontline 2012: 5.8% (based on recently announced merger with Knightsbridge Tankers, who recently raised its dividend and is guiding for long-term dividend growth)
  • Golar LNG: 4%

Over a series of articles I will explore all of these companies and partnerships in order to help income investors decide if they want to participate in the fast-growing Fredriksen empire.

Golar LNG and Golar LNG Partners are among the best ways to play the coming liquefied natural gas (LNG) shipping boom. This boom will be driven by two of the biggest energy megatrends today: LNG exports and growing gas production, a result of the shale fracking boom. 

Golar LNG serves as a large stakeholder (39.4% owner) and general partner to Golar LNG Partners, and as such receives both distributions from the MLP as well as incentive distribution rights, which have grown by 300% since 2012. These income streams have allowed the company to grow its dividend by 80% (18.2% CAGR) in the last three and a half years. 

Both the security and growth of the dividend/distribution will come in the form of aggressive growth in both regular LNG tankers (10 scheduled for delivery by November 2015) and floating storage and regasification ships (three to be delivered by November 2015). 

The MLP, by its nature has a slightly higher yield and slower distribution growth, though at 11.8% CAGR growth since its 2011 IPO, income investors have done very well by both the parent company and the MLP. The combination of excellent industry fundamentals and company-specific execution is likely to continue resulting in market-beating total returns over the long term.

Foolish takeaway
The John Fredriksen empire of companies represents an opportunity for long-term income investors to invest alongside one of the brightest minds in the world today. This modern-day king of the sea has managed to tap into some of the largest and most profitable megatrends in the global economy -- offshore oil drilling, LNG shipping, growing global food demand -- as well as generalized shipping and energy transportation. In the process he has created one of the best wealth and income generating machines in the world, one income investors would do well to consider for their portfolios. 

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The article Why Income Investors Should Invest in John Fredriksen Companies originally appeared on Fool.com.

Adam Galas has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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