The water transportation industry may be the most profitable industry during a strong global economy. Water transportation giants have fallen during the global economic meltdown, but recent trends have suggested the creation of a strong upside taking place.
There are plenty of water transportation companies to chose from, such as Costamare (CMRE), DryShips (DRYS), and Diana Shipping (DSX). But none of these come close to Safe Bulkers (SB), for many reasons.
Safe Bulkers is a water transportation company that transports dry bulk cargo such as coal, steel, grain, gravel, and other similar materials. Safe Bulkers stands out given its ability to generate income from equity, assets, and investments while maintaining liquidity and profitability. Also, it's a high-dividend-yielding stock, yielding 9.09% at its current price.
Now, in analyzing Safe Bulkers, it's important to realize just how different this company is from others. There are plenty of other water transportation companies out there paying very high dividend yields in the 10%-12% range. However, if you look at the company's financials, you'll realize that it's only able to pay these high yields purely through debt. Most water transportation companies now are sinking in net losses, yet are able to offer a 10% dividend yield. How is that possible? Through debt, which leads to more debt and more debt. Safe Bulkers pays its dividends through actual income, making it a much safer investment.
Also, Safe Bulkers is leading the entire industry with respect to its return on equity, coming in at an astonishing 30.6%, with a return on assets of 10.89%, also the leader in the industry. Safe Bulkers is ranked No. 4 in the industry for its high gross margin of 81%, but ranked No. 1 in the entire industry on its profit margin level of 54.89%. Keep in mind that its peers are currently submerged in net losses while Safe Bulkers is bringing in positive income.
All these figures are very strong fundamental indicators of a great company, but it is not enough for a company to have done well -- it needs to do well in the future too. There have been some very strong indicators that Safe Bulkers and its stock will both perform well this year. The company has experienced a modest 3.93% revenue growth, but this was during a time of severely depressed shipping rates. The shipping rates for Safe Bulkers can be tracked through the Baltic Dry Index, which has been on the rise consistently since Feb. 3rd of this year, increasing by 72% since that time. Overall, though, the shipping rates are still in recovery from a major slump, but have been showing signs of improvement because of actions taken by the water transportation industry as a whole. Many shipping companies have anchored their ships and temporarily decommissioned them, cutting the supply of shipping units available, which has resulted in a rapid increase in shipping rates. They've also begun scrapping (recycling) old ships for their steel.
If scrapping and anchoring of current ships continue, the decreased supply to the dry bulk shipping industry should lead to a continued increase in shipping rates throughout the year. Recent earnings reports by Apple (AAPL) and Alcoa (AA) have signaled a recovering and strengthening in the global economy. Not only did they meet estimates, those companies surpassed them beyond anyone's expectations. This stronger global economic outlook points positively toward other globally dependent companies, like Safe Bulkers.
Currently, Safe Bulkers has a very large insider ownership of 64.63%, which signifies confidence from within the company regarding its future performance. Safe Bulkers is a leading company in the shipping industry, which is succeeding because of its ability to manage costs efficiently, utilize leverage efficiently, and invest profitably. Safe Bulkers is currently trading at a P/E ratio of 4.91, one of the cheapest in the industry. Its stock is currently recovering from the issuance of more common shares, which may make the current price a once in a lifetime opportunity.
I want to provide some insight of how well water transportation companies do during a strong global economy; however, because Safe Bulkers is a relatively new company, I will be using two-year historical data from its peers as reference.
Jan.1, 2006, stock price: $12.99
Dec. 31, 2007, stock price: $31.06
Total dividends issued from 2006-2007: $3.75
Total Return on Investment: (Capital Gains + Dividend)/Price paid = 167.9% total gains
Jan. 1, 2006, stock price: $17.33
Dec. 31, 2007, stock price: $73.91
Total dividends issues from 2006-2007: $1.60
Total Return on Investment: (Capital gains + Dividend)/Price paid = 335.7% total gains
The overall theme is that during strengthening global economies, investors who jump on board early in water transportation reap massive benefits. Not only do the companies do very well and benefit the investors, but the stock prices sky rocket from the immense profits these companies make from water transportation. For the reasons listed in this analysis, I believe Safe Bulkers is at a ripe time in its investment for long-term investors.