Why is this company maintaining a 10% dividend yield after resorting to raising $80mm and diluting stockholders?
Pretty dumb. If management is long-term oriented what's the point of this? It is not tax efficient and it dilutes the stock more than necessary.
The obivous best move is to cut the divi to zero until shipping rates turn around and invest the cash in new ships or just do less dilution.
...OK, but yield supports valuation and it also serves as a differentiator within the sector. Case in point: Others have brought it up as incentive to buy the new shares.
In this context, I think it is tough to say that DHT could have raised less $ at the same terms if they cut the pay-out to zero... There certainly is significant value in having the $ NOW so that they can exploit the distressed market rather than waiting it to accrue from surplus OCF.
And again. Since DHT is not using ANY of the proceeds raised to pay the '12 dividend, I still don't understand the beef.
As to your concern about rates... While I acknowledge that the fleet-wide average spot for DHT is currently below their chartered rates, they are higher than they were last year...
17,000 a day is the number that myself and others have mentioned for 2011.
Dividends and capex amount to 6,700 bucks a day for 10 ships (will DHT have more vessels in '13?)... Their opex is ~13,000 per day.
So. ~20,000 gets you fully break-even after the divie pay-out.
YTD, rates are up about 15%... That's pretty close to $20,000 (17k*1.15).
Worse rates in '13 than in '12?
Anyway. Not a lot of scenarios I envision where the company has to cut the pay out... So we get 10% a year while we wait.
But I'm obviously not going to convince you of anything, I am just outlining my own reasoning.
"They will not eat ANY balance sheet cash to pay out the dividend in 2012 - why should they suspend it?"
Because they could have raised $15mm less if they had and maybe at a higher valuation.
Also, they are currently getting above market rates and that will be curtailed substantially by next year.
Ha. Well played.
...I like GE. DOW. PEP. CSX. I did like PM a lot late last year, but the market has recognized it of late.
Good luck, sir. I have been talking trash, but you were obviously right to sell when you did. Hope you get in at a good level going forward.
...I guess you're right: my posting has been pretty sunny.
I completely recognize and agree with the negatives that a lot of others have raised, and I agree with you that management's logic with respect to maintaining the dividend while raising (expensive) cash compartmentalizes the issue...
But honestly. I can get to their POV... Again. They will not eat ANY balance sheet cash to pay out the dividend in 2012 - why should they suspend it?
I would also challenge your assertion that they raised equity below NAV. Indeed, they recapitalized right AT NAV, they just asked us to meet them there... And. That NAV is creeping higher everyday with rates and DCF valuations on boats.
Still tend to think we may see a rally in the shares, and the sector in general, when they report next week.
Not true, at this point in your scenario I have avoided an additional 5 cent loss; personally I would argue I have avoided a 29 cent loss. As for the PE issue I was using the PE as a measuring tool to point out the level of dilution the shareholders are taking. At this point I personally think there is too much risk to jump back in, now that you mentioned it do you know of any opportunistic Blue Chips selling at good value, always worth a look.
Not sure if your wild-eyed optimism is justified here Lamar.
So basically the company raised $73.5mm (after fees) at well under NAV and they are going to pay out about $15mm/yr in dividends. Does that seem like a great idea?
If they had cut the dividend to zero they could have raised much less money on more favorable terms.
Sounds to me like they want to grow at all costs which is dangerous. Average fleet age of 12 years is making them nervous I guess.
I would dip my toe in under 70 cents though as I think that is a fair discount at this point.
Well, you aren't actually ahead of anything unless you actually buy at 80, though, right?
...Also. Since you mentioned it and seemed to imply that this should be trading/will trade on a current EPS basis, you absolutlely did the right thing selling and I would recommend a good blue chip for your proceeds.
I never argued with ghost about the companies financing I thought the first time he pointed that out he was on the money, he just keeps on wanting to make the point. My point has been that the shareholders are getting screwed, even it is a necessary evil.
And if I actually did sell my shares at 85 cents a share I am now able to buy them back at 80 cents a share so my math or yours I am ahead of the game at this point. When DHT announces earnings Lam you may want to make a slight adjustment for the upcoming dilution, which I am guessing would bring the projected 7 cent earnings down to around 3 cents a share. "Just keep that in mind".