Dividend-Paying Drybulk Carriers Make a Lot of Sense

News was prepared under the information support of Online Daily Newspaper on Hellenic and international Shipping "Hellenic Shipping News".

17 May 2008

Thursday . . . The Dividend Portfolio has taken outstanding profits in three drybulk shippers, those maritime transportation companies that carry ore, grain, coal, feed, fertilizers, steel and cement. Feeling bereft of them at the moment — and since demand for bulk shipping should stay strong through most of next year, with steel prices remaining high and a growing number of long-term charter contracts being signed — the portfolio will be adding another in the next day or two.  The one under consideration has a yield of about 7%.
There are two schools of thought on the subject of drybulk carriers. One says vessel demand will outstrip supply though the first-quarter of next year; that's when an increase in the number of ships will kick in, possibly lowering rates, followed by new environmental standards that may shave earnings in 2010. This argument factors in Excel Maritime's recent acquisition of Quintana, which could have a competition-reducing effect through this year.  School number 2 predicts a pullback this summer, followed by a solid rebound after the Olympics in Beijing.  Either way, these dividend-paying shippers are worth your attention.
Most drybulk carriers, as well as many other marine transporters who haul petroleum products and finished goods, traditionally pay dividends. To support them, these companies typically depend on long-term contracts, locking in time charters for as long as possible to get reliable revenue and predictable cash flow. Lately the Baltic Dry Index, the key measure of shipping rates on 40 key routes around the world, has jumped; rates for the industry's largest carriers, the Capesize, have hit their highest point this year. (If you're ever in a position to announce, "Geography for eight-hundred, please, Alex," Capesize vessels are so named because they're too big to fit through the Panama or Suez Canals and instead must navigate South Africa's Cape of Good Hope or South America's Cape Horn to travel between oceans.) The scorching growth we're seeing in Asia, India and parts of South America should keep shipping rates high as commodities from all over the world pour into these and other expanding economies.

Source: Right Side Advisors