How listed dry bulk owners got friendly with dividends in 2021

In this week's edition of Streetwise, we examine the burgeoning number of listed dry bulk owners that have adopted large quarterly dividends, and how it might affect their relationships with shareholders. Subscribe at tinyurl.com/twstreetwise.

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What a difference a year makes when it comes to US-listed dry bulk owners and the returns on capital they are offering to shareholders through quarterly dividends.

In the fourth quarter of 2020, only one of the eight bulker owners under the coverage of investment bank Jefferies offered a dividend, and that was the modest $0.05 quarterly payout from Navios Maritime Partners.

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Flash forward 12 months and only one of the eight has not initiated a dividend — the lone holdout being Greek owner Safe Bulkers.

What is more, Jefferies is projecting three of the owners to pay yields of more than 20% in 2022 based on projected distributions in relation to their current share prices, which are currently well below net asset values (NAVs).

Streetwise caught up with Jefferies analyst Randy Giveans to explore the trend. Why have the payouts come into vogue? Just how sustainable are they, and how will the returns impact valuations and attractiveness to shareholders going forward?

"It's happening for multiple reasons," Giveans said. "Their balance sheets are finally in great shape, the best in 10 or 15 years. Leverage ratios are down to 20% to 25% or even lower against historical averages closer to 50% to 60%."

There is also a dearth of capital expenditure requirements. Exhaust-gas scrubbers and ballast water treatment systems in most cases have already been installed and paid for. Newbuildings have ground to a halt, owing to confusion over future propulsion systems and scarcity of yard slots.

Dry bulk dividend yields

^{Source: Jefferies}

"And with the strong market for the past year, free cash flow is high. When you have that combination, you have the opportunity to pay dividends," he said.

So if that's where dividends have come from, where might they be headed from here? And how does the investor choose among the various offerings, which can be based on different formulas?

If size matters

To the extent that size matters, Giveans' top choices are Star Bulk Carriers of Greece and Genco Shipping & Trading of New York, which have both adopted high-payout models.

Jefferies projects Star will pay out $5.04 in 2022, a yield of 22% based on its recent share price in the $23 range. Genco is tipped to pay $3.20, a yield of 21% based on recent share price above $15.

John Fredriksen's Golden Ocean Group also has a projected yield of 21%, with $2.02 per share expected and recent share price just under $10. But unlike Star and Genco, it has no formal policy.

Shipowners hope the payouts will improve their share valuations. Genco goes so far as to envisage a repricing of the share away from the traditional NAV model to one based on a cash-flow multiple.

While that may be a big ask, Giveans said, there is basis to hope for premium valuations to NAV. But investors will need to believe the payouts are sustainable. How long will that take?

"I think you want to see four quarters in a row of a solid dividend," Giveans said. "Most people look at a one-year return. That gives you some credibility."

More dividend stories:

• Eagle Bulk waited a long time to institute the first dividend of chief executive Gary Vogel's tenure there, but it packed a punch. Read the story in TradeWinds.

• Genco Shipping & Trading knows it can't take the volatility out of shipping markets but it can make its dividend formula predictable. Read the story in TradeWinds.

• Listed shipowners are doing a better job making sure their balance sheets are solid before sending money out the door in dividends. Read the story in TW+.