Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Two Shipping Dividends worth the Risk: Safe Bulkers, Inc. (SB)

Page 1 of 2

Good investors are like artists: They pick a number of stocks of varying qualities in an attempt to create the perfect portfolio. To that end, Safe Bulkers, Inc. (NYSE:SB) and Ship Finance International Limited (NYSE:SFL) are two shippers to consider, since they operate with a mix of longer-term contracts that help to defend them from the volatility. Both companies come with their own risks, but the high dividends and effective use of cash provide a margin of safety for investors. Income is a precious commodity, and quality shippers are a great way to add a little spice to a portfolio.

Safe Bulkers, Inc. (NYSE:SB)

Two Strong Dividends

Safe Bulkers, Inc. (NYSE:SB)

This dry bulk shipper operates 24 vessels under a variety of long-term contracts. Even though it tries to keep its ships off of the spot market, it’s not able to completely insulate itself from the current low prices. Around 33% of its ships’ contracts will expire in 2013, 18% in 2014, and 20% in 2015. Prices are expected to be weak in 2013 due to a continued excess of ships. Safe Bulkers has risks, but its mix of longer term contracts will help it to survive as the supply and demand situation comes back into balance.

The company has some debt on its balance sheet, with a total debt to equity ratio of 1.55. Its fixed rate charters provide steady cash flow, but this increases its customer concentration. This tradeoff appears prudent, as the alternative would be to base Safe Bulkers’ contracts on the volatile spot rates. With a payout ratio of 51%, the firm is being careful not to put too much cash flow into dividends. Its yield of 5.4% is not amazing, but a safe and sure yield is much better than an extreme yield that sucks away a firm’s resources.

Ship Finance International Limited (NYSE:SFL)

This company operates in a number of different areas of the shipping industry. A majority of its business lies in the offshore oil and gas sector. China and India’s continued need for energy, and the growth in offshore drilling from Brazil to the arctic, are positive factors for the company. Also, its long-term charters add an extra layer of protection. As of Q3 2012, 66% of contracts have 10 years or more remaining, and 32% have five to 10 years remaining.

Ship Finance International has a payout ratio of 74%, but the company’s long-term contracts make its yield of 8.9% justifiable. Given the world’s long-term energy constraints and Ship Finance’s exposure to this market, its total debt-to-equity ratio of 2.03 is acceptable. The company currently has $66 million in cash and equivalents ,which is more than enough to cover its banking covenants of $25 million. This high-yielding shipper is an attractive investment, with its effective use of long-term contracts decreasing risk and ensuring cash flow.

One Dividend to Avoid

Nordic American Tanker Ltd (NYSE:NAT) runs a fleet of 20 Suezmax tankers with a small total debt-to-equity ratio of 0.29. In 2013, the oil tanker market is expected to remain depressed.  High gas prices, along with growth in Canada’s oil sands and liquids-rich fracking, are long-term negative pressures on North American crude imports.

Page 1 of 2

Biotech Stock Alert - 20% Guaranteed Return in One Year

Hedge Funds and Insiders Are Piling Into

One of 2015's best hedge funds and two insiders snapped up shares of this medical device stock recently. We believe its transformative and disruptive device will storm the $3+ billion market and help it achieve 500%-1000% gains in 3 years.

Get your FREE REPORT and the details of our 20% return guarantee today.

Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.
Loading Comments...

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 102% in 3 years!! Wondering How?

Download a complete edition of our newsletter for free!