Seaspan, Who knew boat rental could be so lucrative?
Seaspan is an interesting contradiction to Expeditors. Expeditors is a global company, engaged in several forms of logistics, including shipping through air, sea, and land, and distribution. It has no debt, and a long history of excellent operation. While Expeditors hosts a multitude of services, Seaspan Corporation (NYSE:SSW) focuses on leasing sea transport, owning 72 cargo ships. As you might expect, large cargo ships can be expensive, and Seaspan financed their ships with about $3.75 billion in debt. This use of leverage is common in the transportation industries, and Seaspan appears to be doing very well in generating enough cash to pay it off, as revenue for this company has tripled over the past five years. Seaspan relays on long term charters to generate and plan for it’s revenue The company has, in general, been very smart about it’s operations, buying ships when they know they have enough business for them, selling older ships when the market is good, and in general, returning shareholder value through a high dividend while being able to pay off their substantial debt.
Seaspan Corporation (NYSE:SSW) generally increases it’s dividend substantially in the beginning of the year. In 2010, the dividend per share was $0.52 per year; in 2011, the dividend per share was $0.76 per year; and in 2012, the dividend is $1.00 per year. Many people watching the company, including The Motley Fool’s Jim Royal, believe that a large dividend increase will again happen this year.
Seaspan has been on a bit of a tear recently, and if it reports a good quarter for 2012 Q4, set to be released March 5, the current price of around $19 could be justified. However, the high debt, particularly with the high dividend, makes me nervous. While I enjoy the dividend, as a long term shareholder, I wish that money was used to pay down or reduce debt (being payed at 9.25% interest!) instead. That being said, I believe that Seaspan will continue to outperform the S&P 500, but please take only a moderate position in Seaspan if you chose to buy it. The high debt scares me a little bit.
A rising tide lifts all boats–particularly companies that rent out.. um… boats?
Both of these logistics companies are well run, handled the recent recession well, and in my opinion are set for dominance when the world economy improves in the next few years. I would recommend Expeditors as a very safe company, which has a rock solid financial sheet and amazing management, and Seaspan as a riskier but higher potential reward (and high dividend) play into growth in shipping from China. I predict both will outperform the S&P 500 over the next five years.
The article Two Logistics Stocks Set to Outperform the Market originally appeared on Fool.com and is written by Shaun Geer.
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