Recent Buy: Scorpio Tankers Inc.

In my overall strategy I’ve ruled that the portfolio can contain one pure risk position. In the past this position was filled by VEREIT (ARCP at the time) but since then VEREIT has pretty much completed the turnaround and is now considered as normal position. Today I however decided to open yet another such position with a purchase of 350 shares of Scorpio Tankers Inc. for 4,66 USD per share.

Not a very typical holding for my portfolio as it’s operating in a leveraged cyclical segment I really don’t like nor understand in detail. Main motivation was the assumption of good enough chance of turning cycle, very modern fleet providing competitive edge, somewhat limited downside, significant upside potential and very high yield. I’m hoping to exit this position around 9 USD per share and meanwhile collect the dividends. The exceptionally high yield is a risk indicator and there’s always the possibility for a dividend cut which in turn would test the thesis about limited downside.

There’s also one extra factor in this position. As the company is incorporated in the Marshall Islands, taxation will be a bit different. As Finland doesn’t have tax treaty in place with Marshall Islands, dividends shall be taxed as normal income very much like normal pay check. At the moment this isn’t a big factor but for a long position that could provide interesting possibilities for less taxed dividend income. Not really relevant for me since the taxation is likely to change many times before I’ll willingly decrease my normal income. For pensioners this could be an interesting detail though.

Link: http://seekingalpha.com/article/4023325-scorpio-tankers-stng-ceo-emanuele-lauro-q3-2016-results-earnings-call-transcript