This firm is not a master limited partnership, but it has a history of being run as if it were. Others have noted how the company has continually paid out dividends in excess of operating cash flow. The company’s current yield of 7.2% makes it attractive to dividend-seekers, but investors need to be careful. The development of the Keystone XL pipeline and other midstream infrastructure will further decrease the need for North American crude imports. Ship Finance has some exposure to the tanker market, but much less than Nordic. At a price-to-book ratio of 0.55, Nordic appears cheap, but given the negative macro pressures, it should be trading at a discount.
Long-term contracts are an effective way for companies to bring stability to the shipping industry. The dark days of the dry bulk industry are not over yet, but Safe Bulkers has a number of contracts that will help it get through the next couple of years. Also, the company has a conservative payout ratio of 51% which shows that it’s not sacrificing cash flow for short-term gains.
Around half of Ship Finance International’s revenue comes from offshore drilling, which is expected to a strong sector over the long term. Oil is not getting easier to find. The less attractive tanker market represented 30% of revenue in Q3 2012, but this is acceptable, given the large number of long term contracts the company has.
These two companies offer strong yields and an effective way to take part in the shipping industry.
The article Two Shipping Dividends worth the Risk originally appeared on Fool.com and is written by Joshua Bondy.
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