One Great Dividend for the Unchartered Waters Ahead
Matthew is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The seas of investing are all too quiet these days. Another earnings season is past us, the dog days of summer are slowly following suit. Up on the horizon there are some rumblings, a storm might be headed our way.
It’s too far off in the distance to determine what form it will take. It could be another down draft from a rumored Grexit or even a Spanic that takes us up in a whirlwind. Maybe the storm won’t come across the ocean; instead we could hit a fiscal cliff or start to drown in our own debt. Whatever lies ahead, investors need to be prepared.
Dividends are the great safety raft for the long term investor to weather any storm. Not just any dividend mind you, they must be safe and secure while continuing to grow over time. I think I’ve found just that in Seaspan (NYSE: SSW) and their 6%+ dividend.
Seaspan like their peers Danos Corporation (NYSE: DAC) and Costamare (NYSE: CMRE) are what I like to call floating REITs. Global shipping companies lease containerships from them under long-term fixed-rate charters. Of the three Seaspan is the largest at 69 containerships to Costamare’s 57 and Danos at 64. Seaspan just recently completed their latest new build program and has younger, larger ships with a better debt profile than either Costamare or Danos. While Costamare also pays a dividend, I think Seaspan’s is much safer and can grow much higher.
I like the containership leasing business model of Seaspan over the model of drybulk carriers like DryShips (NASDAQ: DRYS) or Diana Shipping (NYSE: DSX). Seaspan is not tied into the operations volatility found in commodity pricing which continues to plague the drybulk shippers. Locking into long term fixed rate charters does wonders for the security of their dividend, something neither DryShips nor Diana are able to pay as they are much more reliant on a strong global economy. Oh, and I probably should mention that both Dryships and Diana are based in Greece.
There is a lot to like in Seaspan’s recent quarter and I think the dividend will be sailing much higher over the next few years. They just finished their new build program and aren’t planning on adding new ships to their fleet for two more years giving them minimal capital requirements to go with a lot more distributable cash flow. I think that cash flows right back to shareholders and I want to jump on board.
That’s why I want to try again to add shares to my virtual “No Drip, No Mess” Portfolio. For that portfolio I’d already written puts that have now expired without netting me shares. I want to write those same $15 puts, this time expiring in November. As before I’m writing two contracts for my virtual portfolio, which works out to a 3% allocation and the $100 in cash we’ll receive is good for a yield of 3.3%.
No matter what the waves of volatility send our way, the steady income from Seaspan will provide a nice haul of cash to reinvest. By using options we’ll be able to take advantage of this volatility by either buying shares cheaper or making money while trying. Not sure if using options are right for you? Learn how to become a whiz at using options sensibly to smooth out and take advantage of volatility.
latimerburned owns shares of Seaspan. The Motley Fool owns shares of Seaspan. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.