Fair Weather for Overseas Shipping Companies

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

29 Jun 2008

The U.S. economy might be slumping, but the global transport of oil, liquefied natural gas, coal, iron ore, steel, grains and other high-value cargoes continues to surge. In the first quarter of 2008, for example, the volume of goods on containerships traveling from Asia to Europe increased 12 percent. This is good news for Seaspan (symbol SSW), which owns a fleet of 29 containerships, with 39 more on order over the next three years. Seaspan has long-term contracts for moving freight on all its ships, including those still under construction. Chief executive Gerry Wang says the company should have no trouble raising dividends 5 to 6 percent over the next two years and possibly at a faster rate afterward. The stock, which at $27 yielded 6.9 percent in mid-May, has delivered double-digit total returns each year since Seaspan went public in 2005.
Seaspan is among 20 shipping companies that rely on long-term, fixed-price contracts with shippers to ensure steady cash flow, and they distribute a high percentage of that cash flow to shareholders. The stocks generally yield 8 percent or better, although a few companies are using their excess cash to expand or retire debt rather than raise dividends.
Genco Shipping & Trading (GNK), whose ships carry coal, steel and iron ore to China, just boosted its quarterly dividend from 85 cents to $1 a share. It could afford to pay out twice that, but Chief Financial Officer John Wobensmith says Genco is limiting dividends to reduce debt. Since Genco's stock has doubled in a year, to $75, it yields just 5.3 percent. But that tells you business is booming. "The economic situation in the U.S. doesn't have a lot to do with bulk shipping," says Wobensmith. "It's the buildup of Chinese infrastructure." If China's economy implodes, all ships will sink, metaphorically speaking. Until then, stick with shipping stocks.

Source: Washington Post