SFL Corp: A Dividend Fortress in the Storm

In a quarter marked by volatility, SFL Corp (SFL) reported a net loss that sent shockwaves through the shipping sector. Yet beneath the headlines, the story is far more nuanced. The impairments on legacy dry bulk vessels—a one-time drag—mask a company with 21 years of uninterrupted dividend growth, an ironclad balance sheet, and a strategic fleet renewal plan primed to unlock value. For income investors, this is a contrarian opportunity of rare quality.

The Temporary Storm: Impairments vs. Core Strength

SFL’s Q1 net loss of $0.24 per share was entirely attributable to non-cash impairments on older dry bulk vessels operating in the volatile spot market. These ships, which represent a small slice of SFL’s diversified fleet, saw declining values due to soft spot rates. Critically, this loss was neither recurring nor indicative of broader weakness.

The core of SFL’s business—$108M in adjusted EBITDA from consolidated subsidiaries—remained robust. Newer vessels in the fleet secured charter extensions at higher rates, while investment-grade customers (e.g., Shell, Maersk) underpin the stability of long-term fixed-rate contracts. As CEO Ole B. Hjertaker emphasized, “The rest of the portfolio is performing very well,” with upgraded ships boosting cargo capacity and fuel efficiency.

Dividend Resilience: A 21-Year Track Record Unshaken

The real test of a dividend stock is consistency. SFL has delivered 85 consecutive quarterly dividends, including Q1’s $0.27 per share payout—a streak spanning global recessions, oil crashes, and now, shipping sector headwinds. This resilience stems from two pillars:

1. Fortress Balance Sheet:
2. $1.3B in liquidity (cash + undrawn credit lines) provides a buffer against cyclicality.

3. Low leverage (net debt/EBITDA of ~2x) ensures flexibility to weather downturns.

4. Asset-Backed Cash Flow:
   The vast majority of SFL’s fleet operates under long-term fixed-rate charters, insulating cash flows from spot market swings. Even as dry bulk impairments hit earnings, $193.5M in Q1 charter revenue reaffirmed the durability of its income streams.

Fleet Renewal: From Legacy to Leaders in Efficiency

SFL is executing a strategic cull of its older fleet, selling low-margin, inefficient vessels to reinvest in modern ships that command premium rates. This isn’t just cost-cutting—it’s a calculated move to:
- Boost EBITDA per vessel: Newer tonnage offers 20–30% better fuel efficiency and higher cargo capacity.
- Reduce exposure to spot markets: By focusing on long-term charters with creditworthy clients.

Recent examples:
- A containership sold for a $10M profit, with proceeds redeployed into a liquefied gas carrier under a 10-year fixed-rate contract.
- Dry bulk vessel impairments freed capital to acquire a $100M LNG tanker—a high-growth asset class.

The result? A fleet increasingly tilted toward high-margin, recession-resistant segments like offshore rigs, chemical tankers, and car carriers.

Undervalued: A Stock Discounted by Noise, Not Reality

At a $7.98 per share price (post-Q1 buyback), SFL trades at a 40% discount to its net asset value (NAV). This valuation gap is irrational given:
- Asset value upside: Modern vessels are trading at record highs, yet SFL’s book value doesn’t yet reflect the gains from its upgraded fleet.
- Buyback momentum: The $10M Q1 buyback (at $7.98/share) signals confidence; more could follow if shares stay depressed.

Catalysts on the Horizon

The next 12 months will test SFL’s narrative—and likely validate it:
1. Charter Renewals: Over $500M in vessel charters expire by 2027. With global shipping demand for specialized assets (e.g., LNG, renewables) surging, renewal rates could exceed current levels.
2. Buyback Acceleration: Management has prioritized per-share value growth; a depressed stock price creates an incentive to repurchase aggressively.
3. Debt Refinancing: Low-interest rates allow SFL to lock in favorable terms, reducing future financing costs.

Conclusion: A Buying Opportunity for the Income Investor

SFL Corp isn’t just surviving—it’s evolving. The Q1 loss was a necessary step to shed legacy assets, not a sign of failure. With dividends intact, a fortress balance sheet, and a fleet transitioning to high-margin segments, this is a once-in-a-cycle entry point for income portfolios.

The market is pricing in fear of cyclicality, but SFL’s structural advantages—long-term contracts, premium assets, and a disciplined capital strategy—are its moats. For investors willing to look past near-term noise, the reward is clear: a dividend powerhouse trading below its intrinsic value, with catalysts lined up to close that gap.

Action to take: Buy SFL shares at current depressed levels. The storm will pass—and the dividend fortress will remain standing.