Why Diana kept buying after its fleet capacity grew 23.75% in 2013

Market Realist

Diana Shipping's unique features and key May 14 discussions (Part 5 of 6)

(Continued from Part 4)

Fleet expansion

The year 2013 was characterized by significant expansion of Diana Shipping Inc.’s (DSX) fleet, as the dry bulk shipping industry turned a corner. The company received delivery of two Capesize vessels, three Kamsarmax vessels, and one Panamax vessel. Consequently, the company’s total capacity, measured in deadweight tonnage, grew from 3,278 thousand to 4,056 thousand.

Relative to its peers such as Navios Holdings (NM), Safe Bulkers (SB), and DryShips (DRYS), Diana actually increased its fleet the most in 2013, increasing its fleet capacity by 23.75%. This compares to Navios Holding’s 9.19%, Safe Bulkers’s 14.49%, and DryShips’s 11.25% increases in dry bulk capacity.

But you should keep in mind that Safe Bulkers had been most aggressive in buying newbuilds recently. As of May 2014, the company had 11 vessels under construction and 31 vessels operating. In comparison, Diana only had three under construction and 38 operating. Keep in mind that Diana could still increase its fleet size significantly, given its low leverage and large cash balance.

Has Diana missed the boat?

Vessel values have certainly gone up, while shipping rates appears to be in a soft patch. Yet Diana Shipping comments that it will continue to purchase good secondhand tonnage and very selectively place new orders for large carriers. Management is confident that the market will eventually improve significantly and be rewarded for its consistent policy and investment strategy of purchasing one or two vessels every two months for the next year and a half–even though the short-term outlook may still be negative and current vessel prices are quite inflated.

Diana’s spread-out acquisition strategy is another factor that makes Diana a less volatile stock, although it may occasionally underperform others that nail the industry bottom and are more exposed to the spot market.

Continue to Part 6

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