Dividend Investors Have To Weigh Shipping Fundamentals and Outlook (NAT, ALEX, OSG, ESEA, SFL, DRYS, SHIP, SEA)

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The world of shipping dry goods, sea containers, and oil and commodities has been in a very strange place so far in 2012.  Dividend investors need to start evaluating whether or not they want to remain or get into this sector regardless.  The Baltic Dry index has recently been at a post-recovery low (see Bloomberg chart at the end) based upon excess capacity, oversupply, and fairly weak demand.  The stocks which trade in the sector, most of which are international companies and ADRs (many are even Greek-flagged), often offer double-digit dividend yields that bring payouts somewhere in between the lucrative MLP sector and mortgage-REITs.

Many of the shipping stocks have been recovering in 2012 while the index for the pricing basis (chart at end) has been weak.  Some shipping companies pay out more than they earn and some keep making dividend payments when they are losing money. What we really want to know is if these dividends are sustainable.  There have been some pressures that recently forced one shipper to suspend dividend payments. We have glanced at the following shipping players with recent earnings and/or dividend news: Nordic American Tankers Limited (NYSE: NAT); Alexander & Baldwin, Inc. (NASDAQ: ALEX); Overseas Shipholding Group, Inc. (NYSE: OSG); Euroseas Ltd. (NASDAQ: ESEA); Ship Finance International Limited (NYSE: SFL); DryShips Inc. (NASDAQ: DRYS); and Seanergy Maritime Holdings Corporation (NASDAQ: SHIP).

We also took a look at the Guggenheim Shipping ETF (NYSE: SEA), the shipping ETF, is trying to signal that a turnaround is heading to the shipping sector. This one pays a very sporadic dividend and there is jus not even a two-year history to be able to track how its payments rise and fall through time. Because of uncertainty and pressure, the shipping sector was not a part of the 2012 Model Dividend Portfolio.

Now look at the chart on the ETF.  At $17.99, the 200-day moving average is $18.21 and this has not been anywhere close to the 2300-day moving average since back in April of 2011.  The question is whether this will act as a huge overhang and allow sellers to take profits or if this will be a new bullish mechanism that allows the run from the start of 2012 to continue.

Nordic American Tankers Limited (NYSE: NAT) recently posted a loss and its tax treatment understanding is that the dividend distributions of 2011 should count as a return of capital rather than as income for income tax purposes.  Where the story gets interesting is that earlier this week it posted a wider than expected loss.  It also sold 5.5 million more common shares back in January “to strengthen the Company’s resources, to fund future acquisitions and for general corporate purposes.”  Shares are down close to 10% from when they sold shares to the brokerage firms and the prior payouts have been $0.30 per quarter for a yield of close to 8.6% if it remains static in the quarters ahead.  At $13.93, the 52-week range is $1.58 to $26.18.

Alexander & Baldwin, Inc. (NASDAQ: ALEX) recently lost 7% after reporting lower 2011.  The company saw a weak trans-Pacific ship market after a recent parent split-up announcement in 2011 even forced the company’s Matson unit to shut down its second China-Long Beach service.  Its payout of $0.315 earlier in February at least compares to earnings estimates of $2.06 EPS for all of 2012. At $44.00, this stock only yields 2.8% today and the 52-week range is $33.09 to $55.50.

It was just a week ago that Overseas Shipholding Group, Inc. (NYSE: OSG) in the energy transportation services announced that it had suspended regular quarterly dividends based upon the downturn in international flag markets being deeper and longer than expected.  Unlike other sectors, this company’s management talked about economic uncertainty in the world persisting while banking markets have become more challenging.  The move is to preserve liquidity and the company plans to reassess the dividend as its end markets improve.

A smaller player named Euroseas Ltd. (NASDAQ: ESEA) in drybulk and containerized cargoes had normalized earnings of $0.04 in earnings per share while it declared a quarterly dividend of $0.05 per share as its twenty-sixth consecutive dividend.  It is smaller in market cap at $93 million today, but it listed an average of 16.00 vessels were owned and operated in the fourth quarter with an average day rate of $12,099 per day.

Ship Finance International Limited (NYSE: SFL) is set to report earnings on Friday, Feb. 17 and estimates are $0.38 EPS for the quarter but the estimates are $1.37 EPS in all of 2012 (versus from $1.72 EPS in 2011).  WIth its most recent payout being $0.39 per share per quarter, the company is paying out effectively all or more than all of its income.  Its yield is over 12% if it remains.  At $12.21 today, the 52-week trading range is $8.62 to $21.15.

DryShips Inc. (NASDAQ: DRYS) does not have a dividend, but its shares have skyrocketed and that rally has stepped back up even after petering out a few days ago.  While $3.57 is a far cry from its old highs, this is up over 50% this month alone.  Without a dividend this is merely a sample of how strong the moves can be around any positive news.

A smaller player named Seanergy Maritime Holdings Corporation (NASDAQ: SHIP) in dry bulk cargo is seeing a large gain on tiny volume (with a mere $25 million market cap).  The gain is after positive earnings and a profit, although it said that it expects overall shipping conditions to remain weak in 2012 with new vessel deliveries only contributing to oversupply.

The dividends here are definitely not immune to the woes of the world if they get worse again.  It is worth noting that the stock market has not agreed with the slower economy thesis.  Maybe the rail and trucking sectors are better on a risk-reward metric.  Ultimately, the verdict here remains uncertain and there is still likely to be a lot of volatility around the shipping sector as the globe floats between contraction and a low recovery continuing.

JON C. OGG

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