With its 13% yield, it’s no surprise that I’ve been receiving lots of requests to take a look at Flex LNG‘s (NYSE: FLNG) dividend safety.

Flex LNG is a Bermuda-based shipping company that owns 13 vessels that transport liquefied natural gas, or LNG. Eleven of those ships have long-term contracts.

Though the company’s free cash flow ticked higher in 2024, it has been trending lower, and next year’s figure is forecast to be the worst since the pandemic.

Declining cash flow is worrisome, particularly for a company that pays a big dividend.

In 2024, Flex LNG paid out $162 million in dividends for an 88% payout ratio. That’s too high. It doesn’t give much room if free cash flow continues to decline.

Considering that free cash flow is projected to drop to $152 million in 2025, that means the company would not be able to afford its current dividend this year.

Making matters worse is the forecast that the company’s total dividend payout is expected to increase to $176 million for a payout ratio of 116%. In other words, for every $1 of free cash flow, Flex LNG would pay out $1.16. That is not sustainable.

Flex LNG eliminated its dividend in the early days of the pandemic. But since then, its dividend payment history has been consistent, with a few raises and several special dividends.

However, the current quarterly dividend of $0.75 is too high for the amount of cash flow the company generates. If cash flow continues to fall as projected, Flex LNG will have to cut the dividend or find the cash some other way, like taking on more debt.

The dividend is not safe.

Dividend Safety Rating: F

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