6500 TEU with $27,900 charter attached for 18-month period. I believe that rate is significantly above market. PR's for previous ship purchases have all stated how the ships would be bought (cash, debt, etc.), but they didn't give us a clue about this one.
At a total cost of $94 million, and only about $38 million cash on the balance sheet, a lot of the purchase price is going to have to come from either the DSX financing, sale of shares, or a combination of both. My guess is that debt will be the largest portion, but that's just a guess.
With the above-market charters, I believe it will help them sustain the dividend at 15 cents for several more quarters ... if that is management's intention. In my opinion they are still sort playing the game of paying current shareholders at the expense of future shareholders, because in 18 months it will be the same song of rechartering at a significantly lower rate. But these are newer-built and larger, and I think will hold their value better than the 1990's era panamax ships.
I got back in today - cautiously. I originally bought in late 2011 and sold near the end of 2012 for a nice gain. i got out in 2012 because the DCIX dividend policy was inconsistent and not sustainable.
Why re-enter now? Unlike past ship purchases where they bought above market rates to get above market charters, they actually seem to have a paid a fair value for these post-panas and got a pretty decent leasing agreement. If you look at the RS Platou monthly report, newbuiliding prices are currently near 8 to 10 year lows. Based on their data, I would guess new 6500 TEU ships would go for $60 mil. Assuming $325/lwt scrap value and depreciating over 25 years yields a $46 mil fair value per ship. And long-term, valuation are more likely to increase from current levels.
I am also hopeful that DCIX will focus on a sustainable divy and not increase it further. Modeling out their cashflows and assuming the 2014 lease expirations are negotiated at current low rates, I estimate that DCIX can maintain this payout rate through Q1 2015. They will also generate $30 to $35 million of cash in excess of divy payments that they can use to pay down debt or do another ship deal or two.
As another check, my adjusted book value (using today's ship prices) is around $4.29. So today's closing price offers a 10% cushion to a failry conservative valuation.
Finally, DSX is not going to let this stock go to zero or go bankrupt. They have the liquidity to add more cash in the form of another loan, or perhaps to buy DCIX outright and wait until the market turns to try another IPO at much higher prices. So, I expect this could provide a floor to the stock price. Add $1.05 in divys through Q1 2015, I am betting the stock price does not sink below $2.75 for long and is more likely to end up a bit higher than that.
But then again, this is just my viewpoint and I could be wrong.
2 newer and larger container ships is good for the fleet's earning potential when the container
ship market turn-around occurs. These look to be the usual "lease buy-back" deals that
DCIX has entered in the past 12 months. Newer ships = less maintenance exps now.
$ 94 million is a lot for 2 ships that can't be scraped after the current charters are completed....
so I really hope that the market turns better by the time these ships come off the lease buy-back
contracts just signed or DCIX will be sitting on big ships that can't come close to break-even in
today's container market pricing environment.
Classic dividend trap and believe me I've fallen many of them (and currently stuck in several with no way out unless I want to sell and take a huge bath due to a major loss pps)...Got out of DSX at $17 but took it in the shorts (bought at $28) when the rates took a dive in '08-'09 with the pps dropping like a rock and unable to watch it...Most shareholders of shipping stocks across the board have suffered a blood bath ~ Glad I avoided this one in the upper $5 range...If you chase yield in shipping you might find some nice dividends but you could end up losing 80%+ of your original share price...
I agree with the term "dividend trap". I do think they can maintain the div at .15 for several quarters, but ultimately they can't keep playing this game of over-paying for used ships with above-market charters. Don't expect any major turnaround in container shipping. Any recovery in the next five years or so will be modest at best. It's just a big mess that won't sort itself out for years, or even decades.
If you're into dividends, look at other industries. Settle for lower yields in exchange for more safety in your principal.