Euroseas: A High Dividend Dry Shipper

Euroseas (ESEA), a Greece based company, provides ocean-going transportation services worldwide. It owns and operates 16 ships that transport major bulks, such as iron ore, coal, and grains, and containerized cargoes.  

For the 6 months ending 6/30/08, revenue is more than doubled, compared to the previous period last year. So did net income. Its P/E is 5.7, and div % is 11.4%. More importantly, it has a conservative dividend payout ratio of 53%.

According to ESEA’s most recent quarterly report dated 8/14/08, about 80% of company’s ship capacity days in the remaining of 2008 have been fixed.  In 2009, 34% of its capacity is under time charter contracts or protected from market fluctuations.  This kind of contract coverage gives ESEA a solid revenue base for the rest of 2008 and 2009, more predictable cash flows and sufficient downside protection.

As you can see from data provided by Yahoo below, all ESEA’s financial metrics (P/E, ROE, debt ratio, and profit margin, etc) are better than the industry average:

click to enlarge

Source: Yahoo Finance 9/8/08

In the data provided above, I also list few major players in this industry:

Dianna Shipping (DSX)’s PE is higher than ESEA. Though it has 15.2% dividend, its 119% dividend payout ratio looks un-sustainable to me.

One of main reasons lots of investors are interested in shippers is for its high dividend, just like REITS, to provide us with long-term sustainable income stream. For this reason, DryShips (DRYS)’s 1.3% dividend is definitely not qualified.

Frontline (FRO), the biggest shipper in this industry has way too much debt. Its debt to equity ratio is 5. In this credit-crunch market, I like to have some safety margin.

Disclosure: I have a long position in ESEA

Comments

[whisperonth...:]

Ahhhh, but FRO has been so good to me lately!

2008 Sep 09 07:14 AM

[vatexas645:]

Frontline (FRO) is a dealer as well as a shipper. Fredrickson is good to his shareholders, pays them well, and has his hands in many segments of the greater shipping industry. The LT debt is earning power in JF hands. I am long on FRO - love the dividends.

2008 Sep 09 09:05 AM

[Chris B:]

Nice analysis. I would like to hear from the critics now.

1) I'm pretty sure China is overdue for a recession or financial meltdown of some type (keep laughing... nothing goes up forever, and the Chinese financial system is precarious to put it nicely.). How might this affect shipping rates?

2) Bulk shipping rates have been increasing at double-digit rates for the last several years, which is not sustainable long term. Is this directly tied to the commodities boom? Are shippers a proxy investment for POT, RIO, PCU, etc?

2008 Sep 09 11:24 AM

[Itsonlymoney:]

The hard thing to remember when the stocks are tanking is that the fundamentals of these stocks are good and the dramatic volatility results from the traders who currently move the marker with their fun and games. My strategy is to enjoy the dividends and wait for opportunities to add to my positions. I just wish I were better at taking some money of the table at the tops.

2008 Sep 09 12:22 PM

[engprof:]

I too own Euroseas. I have been impressed by its fundamentals in comparison to its peers. ESEA is outstanding in everything except price strength relative to others. But in this kind of market, maybe we should also pay attention to market caps and debt ratios. Frontline's debt is high in relation to its peers, but is it high in relation to other companies with $4 billion or higher market cap? Its dividend payout varies unpredictably from quarter to quarter. Although Euroseas' dividend seems reliable and the company raises the dividend regularly, some people say that your dividend portfolio should have only $10 billion-market-cap-or-... stocks. All things considered, I'm not ready to sell ESEA and buy more FRO right now. I'll wait to see what happens if ESEA brings in another good quarter.

2008 Sep 09 10:29 PM

[January Thaw:]

I wouldn't sell ESAE to buy FRO - no way, no how...These guys know
shipping...

2008 Sep 10 10:34 PM

[January Thaw:]

If you think China's in for a melt down...listen to the presentation by
Eagle Shipping...Wait till the end of the year... China's just catching
its breath.

2008 Sep 10 10:36 PM