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Time
to Look at Shipping Stocks
Given the uncertain outlook for the U.S. economy,
this might be a good time to consider shipping stocks, that is,
companies that operate ocean-going cargo vessels.
Ship operators generally fall into two general
categories, oil tankers, and dry bulk shippers.
While you already know what oil tankers do,
dry-bulk might be an unfamiliar term. Dry bulk cargo is iron ore, grain,
steel, and most other items that you’d want to ship except for crude
oil, natural gas, and gasoline.
Ship operators charge by the day. The day rates,
subject to the balance of supply vs. demand, are notoriously volatile.
Since operating costs are relatively fixed, profits skyrocket when rates
are high and can turn to losses when rates drop.
Growing Demand
Spurred by the rapid growth of emerging economies in China,
India, Latin America, and elsewhere, the demand for shipping capacity
has soared, pushing day rates and ship operators’ profits up. However,
in boom times, operators usually keep expanding their fleets until
supply exceeds demand, and day rates drop.
In recent weeks, oil tanker rates have dropped
while dry-bulk day rates have soared. Consequently, although both
categories have enjoyed share price increases so far this year, dry-bulk
shippers have been the stars. But that doesn’t mean that you should dump
your tanker stocks in favor of dry-bulk shippers. Some say that dry-bulk
rates have gone up too far, too fast, and further, oil tanker rates are
probably headed back up.
Dividends Make It Work
What makes shipping stocks attractive to me, is that many pay
hefty dividends equating to yields in the 5%
to 10% range, and sometimes higher. Those
dividends add significantly to returns, and tend to cushion share price
drops when the overall market heads down.
Start With Capital Link
Capital Link Shipping (shipping.capitalink.com)
is a good place to get up to speed on the industry. Capital Link, a New
York-based investor relations firm, runs the free site. Its homepage
lists all U.S. listed shipping stocks, by category, such as dry-bulk or
oil tankers. So far as I know, it’s the only place on the Web or
anywhere else that provides such a list.
Capital Link’s Company Profiles page shows a short
description of each firm’s business. From there, you can also access
stock price data and recent news stories. That information, however, is
nothing special and not as complete as you’ll find on sites such as
Yahoo! (finance.yahoo.com)
and MSN Money (moneycentral.msn.com).
What is special on Capital Link’s site are its
Industry Reports, Articles, Media Interviews, and Events sections.
Industry Reports include detailed weekly
analyses of events in the dry-bulk and tanker industries provided by
several different research firms.
The Articles section has articles taken from
trade magazines, or sometimes the complete issue of a magazine. The
information is useful, but, at least when I looked, was two or three
month’s old.
The Media Interviews section includes a
dozen or so five to 10 minute audio interviews with company CEOs. Those
interviews are good for background on each company’ business plan, but
don’t expect a CEO to give you a balanced view of a firm’s plusses and
minuses.
The Events section allows you to sit in on
presentations that shipping firms have given at recent investor
conferences. Similar to the CEO interviews, that’s useful information
because it helps you understand a company’s business, but again, don’t
expect a balanced view.
Taken together, Capital Link’s reports, articles,
interviews and presentations provide much more information on the
shipping industry and its major players than you could hope to find
anywhere else, at least for free. If you’re serious about investing in
ocean going shipping stocks, plan on spending several hours on the site.
When you’re finished, you should know whether you want to focus on
dry-bulk carriers, on oil tankers, or if you like both categories.
As good as it is; Capital Link’s information isn’t
sufficient to make investing decisions. As I said earlier, I prefer
shipping stocks that pay significant dividends, and Capital Link doesn’t
provide any dividend data.
Continue Research on Yahoo
Yahoo is a good place to research dividend stocks. Start by
entering a ticker symbol to display Yahoo’s
Summary
Report, which includes the expected next
12-month’s dividends (actually, the last quarterly dividend multiplied
by four) and the dividend yield if the firm, in fact, does pay that
amount. Dividend yield, by the way, is the next 12-month’s dividends
divided by the current share price.
Remember that Yahoo’s dividend yield is based on a
firm’s last declared payout. Because oil tanker rates have recently
dropped, most tanker stocks will pay lower September quarter dividends
than Yahoo indicates (the day rates are expected to increase by year’s
end). By contrast, dry-bulk ship day rates are on the rise, so expect
those firms to increase their dividends.
I’ll leave it up to you as to what to do with that
information. However, since many shippers are expected to pay dividends
equating to at least 5% yields, I suggest
ruling out any stocks with lower expected yields. Very high yields, say
15%, are unrealistic and reflect problems that
haven’t yet been reflected in the numbers.
Next, read Yahoo‘s
Profile
report, which describes the firm’s business. This is where you will
rule out stocks whose main business isn’t chartering out ships, or are
not operating in the particular category that you decided to emphasize.
Next, click on
Historical
Prices and then
Dividends Only to see the dividend payout history. Rule out stocks
that have only paid three or four dividends, you need to see a longer
history. Pay attention to the payout consistency. All ship operators
encounter periods when they must cut their dividends, but give
preference to those with the most consistent payout history. Also, look
for a pattern of dividend growth over the years.
I don’t have room to describe everything you need
to know. Spend as much time as you can reading the news and commentary
about your candidates. The more you know about a stock, the better your
results.
published 9/16/07 |
