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Ship Finance International Limited Message Board

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  • marklibera marklibera Aug 8, 2011 11:39 AM Flag

    Dividend in Danger?

    This is the big risk with any of these high-paying dividend stocks. Do they have the cashflow to continue to pay their dividends at the same rate and is there something in their debt agreements that could affect those payouts.

    We learned in the last crisis that many of the drybulk shippers and some of the MLPs had to suspend dividends due to debt covenant issues. Same with many REITs with investments in CDOs. And you can't rely on a record of dividend increases either as further support for the dividend. One of the weaknesses of these high-dividend payers is that since they pay out almost all of their cashflow, they don't have a piggybank to do stock buybacks.

    If SFL doesn't keep the same dividend rate, the stock could go to $6 as many who are holding for the next divy would probably throw in the towel. If they do pay the same divy, there will be some short covering to force the stock price up, but in the absence of a QE3 announcement, the same issues overhanging the global economy and this company will still exist.

    I went through the same experience during 2008 with some of the airplane leasing companies like GLS. At one point, GLS was selling below book and was yielding close to 20% as I remember, but the stock kept tanking and I kept buying. At one point, they cut the dividend in half and the stock fell all the way to $2. I added a bunch at that level only when the stock had stabilized and it looked like the company was still solvent despite a hit to the value of its assets. Slowly, the stock rebounded and eventually was acquired by a competitor. I broke even because of the large purchase at $2.

    The issues facing SFL may be different than those that GLS faced, but the point of the story is that one never knows where the bottom is until there is that big capitulation selling. There were times during GLS's decline that the stock would bounce -- if you buy SFL here and it gets a bounce, you should take the profit. Don't expect the stock to go all the way back to $19.

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    • mark...I agree with most of what you are saying...however, I am already starting to see some cracks forming in the market sell off...it looks to me like the smart money has already started doing some cherry picking...! My opinion, is that the real pressure is now on the shot-callers in Washington and they will get religion (quit screwing around and do something)...! Lets hope I am right...for the record , I am only right about 70% of the time...!

      • 1 Reply to staggman99
      • stagg, during selloffs there are always times when it appears that we might stop going down. That's what I witnessed in the 2008 crisis. But you always have to look at it from the context of support areas and I think I agree (again) with Susan that support may not be until 10400 on the Dow and 1040 S&P. That's another 10% down.

        Today's selloff hasn't had the ring of capitulation selling (although we may get there soon), but I have started to see some of that in some names I own (APL down 17%). The only thing that would change my mind is the QE3 announcement, but that could be another 3 weeks away (or it could come tomorrow) -- this is what happens when your financial system is dependent on the central bank to bail everyone out.

        I do not agree that this will have an effect on the DC politicians. They are too far apart and the Republicans view the President as wounded. Besides they are on vacation.

        As for SFL, it looks to have support in the $10 area. Obviously the dividend announcement is important but may not be enough to cause a bounce if the market continues to sell off. GL

 
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