Income is a big part of investors' returns. Stocks, mutual funds and fixed income ideas in this column are featured because they are relatively solid in their ability to pay dividends or interest. We're giving income investors a resource to start their research for investments that give better yields with lower risk.

December 8, 2010 - Frontline Ltd. (FRO-NYSE) through its subsidiaries, engages in the ownership and operation of oil tankers and oil/bulk/ore (OBO) carriers. It primarily transports crude oil, as well as raw materials, such as coal and iron ore.

It also charters, purchases, and sells vessels. As of December 31, 2009, it operated a tanker fleet consisting of 76 vessels comprising 41 VLCCs, which are between 200,000 and 320,000 deadweight ton (dwt); 27 Suezmax tankers that are vessels between 120,000 and 170,000 dwt; and 8 Suezmax OBOs, which are chartered, as well as had 5 VLCCs under its commercial management. Frontline Ltd. was founded in 1948 and is based in Hamilton, Bermuda.

Here's the scoop about investing in oil tankers: the seas are rough. If you're prone to seasickness, don't buy these stocks because the volatility in the stock price and the dividend payment will make you more than queasy. It'll make you head for the railing.

Having raised that red flag, there are plenty of good reasons to consider FRO, if, if you'll pardon the expression, have the stomach for it. Income from this stock can be impressive. In 2006, the dividend was $7.00. In 2007, it was $8.30, followed by $8.25 in 2008. The stock price hit an all-time high in 2008, touching $72.40 before it started its descent to $15.80 by early 2009. The dividend for that year was 90 cents. This year, the total will be $2.00 for the payout. See what I mean about the volatility in price and dividends?

That's all in the past. What does the future look like? The immediate future doesn't appear too strong. That's because daily rates for VLCC's haven't rebounded. In 2008, they averaged $96,400 a day. By the third quarter of 2009, they were down to $23,400. Frontline couldn't make a profit at that level on its VLCC's. Rates increased to $55,000 by the first quarter of 2010 but then decreased to $30,000 by the third quarter. This quarter, analysts see $40,000 daily rates as China boosts its oil imports. Once again, the volatility of this industry can't be stressed enough.

Of course, dividends come from cash flow, but they are usually analyzed by what percentage of earnings they take. For FRO, they've been from 68% to 116% for the last 3 years. Since they can change quarterly, no dividend amount is considered permanent. It fluctuates with those daily rates.

Those rates are influenced by the number of boats floating. Total vessels will increase through 2012 (lead time on these is years). But then orders dry up, suggesting that with older vessels going to mothballs or the bottom of Davy Jones locker, rates will have a better chance of increasing. Frontline received 6 new ships so far in 2010, bringing their total count to 61 owned and 28 managed. Total payment for ships this year will be $545 million (per management), up from $170 million in 2009. Next year, expenditures drop to $115 million. If management doesn't cancel future orders, there will be an additional 8 ships arriving between 2011 and 2013 for a total of $400 million. Cash flow should cover those costs.

More numbers: Market cap is $1.96 billion. Trailing P/E is 11.05. Forward P/E is 11.26. Price to sales ratio is 1.65. Price to book is 2.59. Book value is $9.85. Operating margin for the last 12 months was 24.24% while Profit margin is 14.75%. Return on equity was 23.53% and Return on assets was 4.76%. Revenues were $1.20 billion. There's $207.98 million in cash for $2.67 a share. Total debt is $2.94 billion. Debt is equity is 3.84. Current ratio is 1.53. Beta is 1.28. For the last 52 weeks, the stock is down 6.80% while the S&P 500 index is up 12.07%. There are 77.86 million shares outstanding with a Float of 51.54 million. The current dividend is 25 cents for the fourth quarter which will be paid on December 20 (ex date was December 3).

If you are an income investor, Frontline isn't a stock you would normally consider. But if you're an income investor with a good understanding of the volatility of the shipping industry, particularly the shipment of oil, then this stock should intrigue. Right now, dividends are relatively low, but if and when rates for ships increase, so will the dividend. Of course, if those daily rates go down further, so will the payout.

- Company Web site: www.frontline.com

- Ted Allrich