The shipping stocks sector has been in a five-month severe decline. I have a couple of shipping companies in the Dividend Hunter portfolio, and the stock charts are not pretty. Should we average down, or will this get worse?
The SonicShares Global Shipping ETF (BOAT) has 50 component stocks in its portfolio. The ETF’s 52-week high came in early June, and as I write this, the day after the election, the BOAT share price is 22% below that recent peak.
The SonicShares Global Shipping ETF (BOAT) has 50 component stocks in its portfolio. The ETF’s 52-week high came in early June, and as I write this, the day after the election, the BOAT share price is 22% below that recent peak.
Investors typically own shipping stocks for the attractive yields on the shares. Many of these stocks carry yields in the mid-teens and higher. BOAT yields 6.7%. The sector’s decline may be due to fears concerning dividend cuts.
Shipping is highly cyclical, and most companies pay big dividends when times are good and stop paying when profits dry up. When share prices drop, as they have over the last few months, investors sell, fearing dividend cuts. The fear selling continues to push share prices down.
SFL Corp (SFL) is a shipping stock that is down 54% from its 52-week high value. Ouch!
However, SFL is a different kind of shipping stock. The company owns a diverse fleet of vessels that it leases out on long-term contracts. Here is the fleet breakdown with average contract durations.
The practice of using long-term charters produces stable revenues and profits. SFL just announced its 2024 third-quarter results. Here is the reported EBITDA (the best metric for asset-heavy companies) for the previous four quarters:
· 2024 third quarter: $158.8 million
· 2024 second quarter: $138.0 million
· 2024 first quarter: $143.8 million
· 2023 fourth quarter: $124.1 million
Profitability is stable and trending higher. These numbers do not look like they belong to a stock that has dropped by 50% over the last half year.
SFL has paid regular dividends for 20 years. The dividend rates have fluctuated, with a significant reduction at the start of the pandemic. But since then, SFL has increased its dividend eight times—including three times in the last year—for 80% dividend growth. The current dividend rate requires $35 million of cash flow, so looking at the EBITDA numbers, I expect the dividend to continue to grow.
SFL yields right at 10%. It’s a great time to buy shares and lock in that high-yield income stream.
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