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I am thinking again about dry bulk. NM, EGLE, DSX. I notice that EGLE suspended it's dividend this year. On the other hand Fidelity reports that NM & DSX have more aggressive accounting standards.
I am looking for a dividend stock but don't want one that can't sail through rough financial seas. Comments, please, from those that follow the industry.
I am thinking again about dry bulk. NM, EGLE, DSX. I notice that EGLE suspended it's dividend this year. On the other hand Fidelity reports that NM & DSX have more aggressive accounting standards.
I am looking for a dividend stock but don't want one that can't sail through rough financial seas. Comments, please, from those that follow the industry.
Look at esea. They just lowered their dividend again, but they are buying ships now. Had stated committed to divy, so will probably not be totally suspended, up over 10% last few months.
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JimnJana
Former DINKS now DRINKERS (Dual Retirement Income No Kids Early Retirees)
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2003
Posts: 10,537
Brat, unfortunately there are few "investment grade" companies in the industry that pay a dividend. I do not know the wet side and containers are a disaster, so I will comment on the dry side.
DRYS: run, quickly.
EXM: overlevered when they bought QMAR and still trying to stave off creditors.
EGLE: Overcommitted on newbuild orders and still have a capital hole to fill to meet their payments. If they can raise enough capital without excessive dilution, this is a great buy. No div.
OCNF: run.
ESEA: small, elderly fleet. Need capital to expand and it is hard to come by.
DSX: clearly one of the survivors/winners. Cut the div to build up a warchest and now sitting on a pile of cash that they will eventually deploy in opportunistic fleet expansion. But did they miss out on the most attractive deals this year due to excess conservatism?
NM: my favorite in the sector. Focus on long term time charters with solid counterparties and then get default insurance on the charters from an EU govt agency. Also own a fast growing barge/port operation in S Amer that will eventually be spun off or IPOd. Accounting and business are much more complex than other bulkers (so I focus on cash flow and EBITDA) and they have run with some leverage (not excessive, IMO). Did some really attractive bottom fishing deals in the past year, which were only possible because they were the only bulker with access to fresh capital on non-distressed terms. Pay a div that appears stable.
NMM: easily the best choice if you are focusing on yield. Structured as an MLP, this is partially owned and run by NM, but is much simpler than NM. They have young ships on long term insured charters , modest debt, and pay out all excess cash flow. When they want to expand the fleet, they go to the market for capital which enforces discipline. NM as manager/GP is incentivized to maintain and increase the distribution, so I expect this will be the case. You would have to get comfy with the manner in which NM sells ships to NMM (reasonable to cheap, IMO). Tax efficient.
In pure bulk, I would look at NMM, DSX and NM. The rest have business/capital structure issues or are run by shady characters.
A couple others to look at:
ULTR: Some bulkers, a growing petroleum supply vessel (PSV) fleet, and the largest barge/port operation in S Amer. Management is in the process of an ambitous, countercyclical growth program. Aside from the bulkers, this is increasingly a Brazil/S Amer play run by smart mgmt (who own a lot of the company). No div.
NNA and related warrants: this is a SPAC (blind pool) organized by NM and Ms. Frangou (Chairman of NM). They have until next June to pull off a deal or else give the cash back to investors. I expect they will find a bottom fishing deal to do, most likely in a specialty wet market (chemical tankers?). The conservative way to play is to buy the equity, since you get your cash back if the deal does not happen. The aggressive way to play is the warrants, which will be worth multiples of current price if they do a deal or zip otherwise. Considering that NM was originally brought public via a similar SPAC and I bought NM warrants that went from 50 cents to $10, I think the warrants are more interesting.
In the interest of full disclosure, I own NM, ULTR and NNA warrants. I have owned DSX, EGLE, QMAR and DRYS at different times in the past, and traded options on most of these names.
Incidentally, this is my 10,000th post. Happy to spend it helping a forum member.
Incidentally, this is my 10,000th post. Happy to spend it helping a forum member.
Welcome to the "10,000 Posts Club". There are 7 of us, including CFB who (of course) is the King of Many Posts.
__________________ "Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harborless immensities." - - H. Melville, 1851
ESEA: small, elderly fleet. Need capital to expand and it is hard to come by.
Incidentally, this is my 10,000th post. Happy to spend it helping a forum member.
Brewer,
Congrats on the 10000th post club! Its obvious you know the shipping industry well, thanks for the analysis of the selected stocks. I have owned ESEA in the past and plan to buy it again. I like the business model, they buy used ships at a good price, run them efficiently at generally lower costs than competitors, then sell them before they become "elderly", IMO. Last year they made several acquisitions, they have cash in the bank and appear to have access to the funding they need to make the deals. That said, they did cut their dividend and are have entered into some agreements at less than cost (apparently having figured it was better than the cost taking the vessels offline). I think they are survivors and as the charter rates improve, they will as well. They have already indicated that in 2010 they will be making several other acquisitions/dispositions. They may not grow their fleet at all, but they will be washing out several of their older vessels.
Jim
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JimnJana
Former DINKS now DRINKERS (Dual Retirement Income No Kids Early Retirees)
Looks like I'm number 26. Probably going to slip futher down the ladder as I have been slowing down a bit. But could pick up a little during the winter when I can't get outside. Speaking of outside, time to head to the golf course.
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2003
Posts: 10,537
The problem ESEA will have is that they are dependent on raising new capital to expand and the market does not want to give capital to shipowners, so you have to pay up and only the best known operators really get sufficient capital at a reasonable cost. So if you are small and don't have a lengthy track record (like ESEA), it will be hard and expensive to grow. In contrast, DSX and NM are operators that the banks and the markets are willing to play with and therefore have a competitive advantage in raising capital.
Cargo haulers are really in rough seas, the double-stack train cars are parked for miles along I-5 south of Olympia.
I have mixed feelings about tanker industry in general. Double-hulls are now required by China but the incident financial risks are huge.. and few are willing to understand that is the price of economies dependant on oil.
Bulk haulage is versatile and necessary for developing economies. Better there than other shipping, IMHO. Within that, as you note, management varies.
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