Diana Shipping to Benefit From Increasing Raw Material Demand

Diana Shipping (DSX) is a Greek shipping company specializing in transporting dry bulk cargoes such as iron ore, coal, grains and other materials. DSX has 13 Panamax ships and 3 Capesize in current service. They have 3 Capesize on order with the first to be ready in November 2007 and the other two in 2Q of 2010. DSX completed an initial public offering of common stock on March 23, 2005.

Management Objectives

Management's objective is to manage and expand its fleet in a manner that will enable DSX to pay attractive dividends and enhance shareholder value. To accomplish this objective, DSX intends to pursue highly focused business strategies, including: continuing to operate a high quality fleet; strategically expanding the size of our fleet; pursuing an appropriate balance of short-term and long-term time charters; maintaining a strong balance sheet with low leverage; and maintaining low cost, highly efficient operations.

Fundamentals and Prospects

Sales for DSX have grown at 66% the past 3 years and Earnings Per Share [EPS] have grown by 30% for the past 3 years but slowed over the last two. The current dividend rate for DSX is 7.69%. One thing to note, DSX has a negative Free Cash Flow but looks like it will turning positive in the next couple of quarters.

The real thing to look at is the Baltic Dry Index [BDI] which is an average of rates for shipping various dry goods on specified routes. The BDI average for Panamax ships went from 34,610 on January 2, 2007 to 59,050 on July 13, 2007. The big reason for the increase in the rates can be explained by China as it is importing huge amounts of grains and raw materials. This is a good sign for the economy as the BDI is a leading indicator but it also could signal higher interest rates and commodity prices. The Panamax BDI rate on the DSX website under their Fleet Employment section.

Conclusion

This is a risky dividend stock but if the demand for raw material from China and the world keep increasing, the rate for hiring a dry bulk ship will keep increasing as well. I see the demand for raw materials increasing for the rest of the year so I rate DSX a buy, but be very careful of the BDI.

Disclosure: The Div Guy owns shares of DSX

DSX 1-yr chart

Comments

[A. Nony Mouse:]

Check out page B3 in July 18, 2007 Investors Business Daily. Their outlook is a lot more positive.

2007 Jul 19 12:28 AM