Safe Bulkers (SB) specializes in marine transportation services. The company currently has 25 vessels. The market cap is $391 million.
Safe Bulkers issued a new series B preferred onto the market earlier last month. The preferreds are trading right at par value, which is an 8% yield. The proceeds are expected to be used for vessel acquisitions and possibly paying down debt. This is a great preferred to have in a dividend portfolio. In the current low rate environment, it can be difficult to find a decent yield.
To better understand the risk profile of the preferred, we need to see how the underlying company is doing. After all, if the company is not able to make money, how do we expect it to make those dividend payments?
We know that the company will pay $3.2 million in dividends each year on these preferreds. Last year, the company had a net income of $96 million. In 2011, they had a net income of $89 million. In 2010, net income was $109 million. So investors should feel much better knowing that the company is making a nice profit each year and more than enough to make those dividend payments.
In addition to this, the preferreds are cumulative. What does this mean? It means that the company cannot make its common stock dividends until paying the preferreds. If at any point in the future the preferred's dividend is cut, then the company cannot pay the common dividend until it makes up all the deferred payments. Having a cumulative preferred is important, as it means you have seniority in the capital structure. Even though preferreds are senior, there are several preferreds which are non-cumulative, and a company is not obligated to pay them.
The company's common currently has a 4% yield, and even though the dividend has been cut over the past few years, they have been making payments since 2008. So the company is committed to returning capital back to shareholders, which means the preferred holders can feel much better knowing that it's cumulative.
I believe this preferred is a great investment for income investors. It allows you to grab some yield without having to chase a stock above par value. Safe Bulkers makes plenty of cash and will have no issue making the dividend payments. The last added plus is that the dividends are qualified and are subject to the income tax rate. Please consult your tax advisor for further details.
The preferred has different names including SB-B, SB-PB, SB PRB, etc. Please check with your brokers on this.
Disclosure:. I am long SB-B I have no positions in any other stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.