5 Shipping Stocks Offering Double-Digit Yields
Dr. Osman is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The shipping industry is considered a tough call. When we refer to the shipping companies headquartered in Greece, the overall picture does not get any better. Greek shippers have a strong name supported by years of successful performance, but the 2008 economic crisis nearly sunk them. However, most of them pay some of the dividend yields in Europe.
The main question is whether these dividends are sustainable. Well, Greek shippers have managed to survive five consequent years of low global demand and 2 years of oversupply within the sector. This is a good sign. By following a carefully planned growth strategy, the Greeks established an international operating network, through which they manage the world's largest merchant fleet. Once the industry starts to pick up, Greeks will certainly stand at the forefront. I believe the balance between demand and supply in the dry bulk transportation business is expected to be achieved starting Q3 2013. If this turns to be true, then investing in a Greek shipper will be a very rewarding decision.
Here, I review the fundamental state of five Greek shipping companies. It is worth noting that those companies offer double digit yields, which is extremely rare in the U.S.
Capital Product Partners (NASDAQ: CPLP) transports oil, refined oil products, and chemicals internationally, and has a double digit dividend yield. Its last cash distribution of $0.2325 per common unit indicates a yield of 11.92%. The company is about to release 3Q 2012 financial results, which I anticipate with great interest. Over the last 5 years, sales have been going up by an average rate of 40%.
The balance sheet shows an almost $15 million differential between current assets and current liabilities, which means dividend payments are sustainable. Also, the company reveals strong profitability prospects and good control of expenses. EPS this year grew by the impressive rate of 234.25%, while next year EPS growth is expected to reach 111.76%. Gross profit stands at 91.15%, well above the industry's median.
The current debt-to-equity ratio of 0.73 is quite concerning. However, with a trailing free cash flow to sales ratio of 44%, the company has enough cash-generating capacity to pay its bills.
Established in 2010, Diana Containerships (NASDAQ: DCIX) is a global provider of dry-bulk transportation services. DCIX has a 20.10% dividend yield and trades with 30% discount to book value. This certainly makes it an attractive investment. The company reveals financial discipline with a debt-to-equity ratio lower than the industry's median and a current ratio of 3.24. Quarterly sales are up by 251.67%.
The stock is trading at around $6, which is about 20% lower than its 52-week range of $7.88. According to analysts' average mean target price, Diana has upside potential of at least 35%. However, ROA and ROE figures are relatively disappointing. Overall, I have mixed feelings about this stock. I am worried about next year’s EPS growth projections, which are negative. In addition, the company is young and is in the process of investing large amounts of its available cash in expanding its fleet. At the moment, it shows a solid financial position, but it still needs time to establish its place within the market. Nevertheless, I strongly suggest that it is worth watching for upside trends.
Box Ships (NYSE: TEU) has operated in the container shipping industry since it was established in 2010. The stock yields 18.94% and trades with desirable valuations. At the price of around $5.50, the stock is trading with 50% discount to book value and 1.82 times sales. It has a PEG ratio of 0.11, which certainly indicates a value opportunity. Box Ships is a rather cheap stock, with a current P/E ratio standing at 5.18 and a forward P/E ratio of 6.03. Fundamentally, the company looks strong, with margins that exceed the industry's average. Also, for the next five years EPS is expected to grow by 49%. However, in my opinion TEU is quite a risky choice.
The debt-to-equity ratio does not look so good, which makes me a little bit cautious. Moreover, the exposure to the container ship market, which remains weaker than the dry cargo and tanker market, is a disadvantage. Overall, however, analysts are bullish about the stock's future performance giving it a minimum upside potential of 48%.
Tsakos Energy Navigation (NYSE: TNP) owns a diverse fleet that transports petroleum products, crude oil, and liquefied natural gas internationally. Up until the first quarter of 2012, the stock performed nicely by returning about 22%. Unfortunately, since then it is on a downward trail. Its previous market close was 44% lower than its 52-week high of $9.14.
Its valuations are more than attractive. Tsakos is trading at a 40% discount to sales and 74% less than book value. EPS for the next year is expected to rise by 108.50%. Nevertheless, I need more to be convinced that the current dividend yield of 13.73% is sustainable. EPS this year rolled down the hill. However, investors’ sentiment is positive over the company's future performance. This is probably because, since 2007, revenue trends have been increasing by an average rate of 76.86%. Moreover, Tsakos has recently announced several charter extensions, which are going to add cash to the company's accounts.
I saved the last spot for Navios Maritime Partners (NYSE: NMM), as it is my favorite in this list. Navios Partners is one of Navios Group's associated companies. The company was founded in 2007 and went public the same year. The partnership’s core fleet originally belonged to its parent Navios Maritime Holdings Inc. After its incorporation, Navios purchased and started to operate this fleet. I stand bullish about this company mainly because I have faith in the Group's competitive growth strategy. The Group follows a conservative business model, which allows it to cope with occasional market volatilities. In times of healthy market conditions, Navios Group initiates long-term contracts that serve as guarantees to any kind of short-term volatility. This strategy has placed the company at the front line of the shipping industry.
The partnership is the safest dividend-growth company in this list. Over the past five years, revenue has been going up along with dividends. While the quarterly dividends were $0.17 in 2008, the current dividend of $0.44 indicates a yield of 11.51%. Moreover, over the last five years sales accelerated at a pace of 42.55%. The current long-term debt-to-equity ratio of 0.45 is perfectly manageable.
The company has high profitability prospects and shows sound control of expenses. Profit margin and gross margin stand at 35.20%, and 92.60%, respectively. The stock is priced at around $15.30 with a P/E ratio of 11.92. The partnership's valuations are not so attractive compared to the industry's average valuation metrics. However, the stock has performed well with positive year-to-date stock returns, whereas most of its peers have not. Overall, I strongly suggest that the partnership will continue to reward its shareholders.
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