Diana Shipping's unique features and key May 14 discussions (Part 4 of 6)
Despite having a large cash balance and employing vessels on short- and long-term charters, Diana Shipping Inc. (DSX) currently doesn’t pay a dividend. The last time the company paid dividends was in 2008, when the bubble in the dry bulk market collapsed. The board decided to cut dividends in order to position the company to take advantage of attractive market opportunities—but perhaps also to shield itself from weakness ahead.
This differs from other dry bulk shipping companies, such as Navios Maritime Holdings Inc. (NM) and Navios Maritime Partners LP (NMM), which kept dividends relatively constant throughout the industry downturn. Safe Bulkers Inc. (SB) also continued to distribute dividends, although it had reduced the amount over the years as its earnings declined and long-term contracts expired.
As the company kept the returns from its long-term contracts internally, it doesn’t have to tap the public market for additional capital when it needed money to expand its fleet when the opportunity arises. Also, it won’t have to raise capital to help it pay down debt. These additional share offerings (raising capital from the public market) tend to negatively impact share prices.
In its recent call, Diana Shipping commented that it will reinstate dividends in the non-growth part of the cycle, where short-time charter rates and vessel values were inflated. Management added that it plans to deploy capital slowly over the next year and a half to increase its fleet, which reminds us that the shipping cycle is more or less in a long-term recovery. Keep in mind that this still depends on how fast global trade can grow and how many vessels are being ordered. If there are too many new vessels, or if global trade growth slows, the recovery will be postponed.
Browse this series on Market Realist:
- Part 1 - Diana Shipping’s unique features and key May 14 discussions
- Part 2 - Why Diana Shipping will be sensitive to rates near the end of 2014
- Part 3 - Why Diana’s solid cash balance and low leverage are so important
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