International Seaways (INSW): Navigating Resilience Amid Cyclical Challenges

The global tanker market is in a slump, but International Seaways (INSW) is charting a course to weather the storm. With tanker rates at multiyear lows and TCE (Time Charter Equivalent) revenues plummeting, investors are scrutinizing the company's ability to sustain its dividend—a cornerstone of its appeal for income-focused investors. Meanwhile, its fleet modernization strategy has raised questions about whether INSW is positioning itself for recovery or merely delaying the inevitable. Let's dissect the data to assess whether this shipping giant remains a defensive play or if the risks have become too steep.

The TCE Revenue Decline: A Threat to Dividends?

International Seaways' first-quarter 2025 results underscore the severity of the tanker market's downturn. Consolidated TCE revenues dropped to $178 million from $271 million in the prior year, with crude and product carrier segments hit hardest. VLCC spot rates, for instance, fell to $33,500 per day from $44,700, while LR1 and MR vessels saw even sharper declines. These declines have pressured net income to $50 million from $144 million in Q1 2024.

Despite the headwinds, INSW maintained its dividend policy, albeit with adjustments. The May 2025 dividend of $0.60 per share (75% of adjusted net income) reflects a shift from the 100% payout ratio seen in 2023. The 10% trailing yield—calculated on an average share price—remains compelling, but the question is: how sustainable is this payout as TCE rates linger near breakeven levels?

Historically, INSW has prioritized dividends even during cyclical dips, but the current payout ratio is now at a five-year low. This suggests management is erring on the side of caution. However, with spot rates for key vessel types like VLCCs at just 40% of their 2022 peak, the dividend's safety hinges on whether rates stabilize or improve.

Fleet Modernization: A Strategic Shift or a Gamble?

To navigate the downturn, INSW has accelerated its fleet optimization. The recent swap of two aging VLCCs for three newer MR vessels marks a strategic pivot toward smaller, more flexible product carriers. This move aligns with two key trends:

1. Regional Trade Dominance: MR and LR1 vessels excel in short-haul, high-frequency routes, which are less sensitive to macroeconomic swings than long-haul crude shipments.
2. Environmental Compliance: The new builds include scrubber-fitted, LNG-ready LR1s, positioning the fleet for stricter emissions regulations and potential demand for low-sulfur fuel transport.

Critics argue that shrinking the fleet's crude capacity in a weak market is risky, but the data suggests foresight. MR and LR1 vessels have outperformed VLCCs in recent quarters, with MR spot rates averaging $27,400 in Q1—still below 2022 peaks but higher than VLCCs. The fleet's average age has also dropped to 9.8 years, enhancing operational efficiency and reducing maintenance costs.

Balance Sheet: A Fortress or a False Sense of Security?

INSW's balance sheet stands out in the sector. With $673 million in liquidity (including $540 million in undrawn credit) and a net loan-to-value ratio of just 15%, the company has ample room to weather a prolonged downturn. Debt repayments of $80 million in Q1 further underscore financial discipline.

Yet, the question remains: Can this strength compensate for a lack of earnings growth? The company's adjusted EBITDA has halved year-over-year, and without a recovery in rates, cash reserves could eventually come under pressure. However, INSW's conservative leverage and dividend flexibility (e.g., scaling back supplemental dividends) suggest it can endure several quarters of weak rates without breaching covenants.

Valuation vs. Yield: Opportunity or Overreach?

At a 10% dividend yield, INSW is an income investor's dream—or a trap. The yield reflects the stock's 40% drop over the past year as tanker rates collapsed. To assess its validity, consider:

• Dividend Coverage: The payout ratio of 75% is manageable now, but if TCE revenues fall further, the dividend could face cuts.
• Valuation Multiples: INSW trades at just 3.5x EV/EBITDA, a 40% discount to its five-year average. This implies the market has already priced in a prolonged downturn.

The key variable is tanker market recovery. If demand for seaborne crude and products rebounds—driven by inventory rebuilds, Middle East exports, or LNG growth—the yield could prove a steal. Conversely, if oversupply persists due to newbuild deliveries or demand stagnation, the dividend might be unsustainable.

Conclusion: A Defensive Bet, but With Caveats

International Seaways is a classic “defensive” shipping play: its fortress balance sheet and dividend discipline offer ballast in turbulent markets. The fleet modernization and focus on product carriers align with structural trends favoring smaller vessels, while newbuilds position it for a greener future.

Investment Takeaway:
- Bull Case: A recovery in tanker rates by late 2025 or 2026, driven by OPEC+ exports or LNG demand, would re-rate the stock and sustain the dividend.
- Bear Case: Prolonged weakness in crude and product tanker rates forces dividend cuts, eroding the yield advantage.

For income investors willing to bet on a cyclical rebound—and patient enough to wait—INSW's 10% yield offers asymmetric upside. However, those seeking stability in a stagnant market may want to wait for clearer signs of recovery.

The stock's valuation and liquidity make it a compelling “wait-and-see” opportunity, but the tanker market's timing remains the wildcard.

Ask Aime: Can International Seaways (INSW) survive the tanker market slump and maintain its dividend?