For those of you unfamiliar with my preferred Investment philosophy, 'The Basics Underlying Investments Viewed Through the Eyes Of A Preferred Investor' will explain how and why I became a preferred investor. More important, it will provide you the information necessary to fully appreciate and understand the process I utilize to research and determine whether or not I will invest in a particular company's preferred equities. What follows is that process.
When considering the acquisition of Safe Bulkers' (NYSE:SB) preferred shares, it's necessary that we view that company through a different set of eyes than we would were we interested in acquiring its common shares.
Consequently, unlike its common cousins, it's necessary that we first study the offering prospectus of the preferred shares we are interested in acquiring. To accomplish this, let's visit my favorite preferred search site, Quantum Online, which I set to open to SB. Below is a snapshot of a slice of that page:
A quick review informs us that Safe Bulkers, is a small company specializing in drybulk transportation along worldwide shipping routes.
Let's click on the Find Related Securities to examine any preferreds this company has to offer:
Here we learn that SB offers the preferreds, (SB-B, C & D), which were initially offered at the identical interest rates of 8.00%.
Now let's click on SB-D itself. Below is the screenshot:
- I like that this preferred is cumulative, meaning that in an event that payments are suspended, they accumulate and are owed to the shareholder, and will be repaid in full if and when the payments are restored. And they must be completely repaid before the common shareholder will be allowed to receive any further dividend payments. Additionally, there are probably more sanctions and restrictions placed on the company, and will remain so until the missed payments are repaid in full. As a rule, I only invest in cumulative preferreds. Although bank preferred dividends are usually secure, they are almost always non-cumulative, and consequently, I don't buy them.
- These shares are callable at the company's option in 6/30/19 at $25.00 plus any accrued interest owed. This means that you have a little under 3 years before the company can call this issue, at which time, they must pay its par value of $25.00
- They pay a dividend of $2.00 per share per year, or 0.50 per quarter, paid 1/30, 4/30, 7/30, 10/30 of each year. Meaning, 4 times each year, on the dates specified, you will receive 0.50 per share, which will add up to a total of $2.00 per share payment per year.
- At the time of their IPO, these shares were unrated by Moody's or S&P, which really doesn't concern me, but might concern a more conservative investor.
- These shares have no stated maturity, meaning they can remain uncalled in perpetuity, which is fine with me. Pay me, pay my heirs, pay the heirs of my heirs for all I care. However, if called, it will be at their $25.00 call value plus any accrued interest owed.
- Dividends are eligible for the preferential income tax rate of 15% or 20%. You should be aware of how these tax ramifications will affect your investment bottom line.
- As usual, upon liquidation, preferreds rank senior to commons and junior to debt, both secured and unsecured.
However, simply knowing and understanding the preferred issues of a company in no way allows one to gauge a company's long-term health or to fully comprehend its business model. To better accomplish this, a knowledgeable investor should be able to dig down into the numbers, and at least marginally understand a company's financial statements and conference calls.
Sounds reasonable, but extremely difficult for most investors, including myself. I often rely on interpretations by SA contributors who have proven more knowledgeable than myself. Unfortunately, the vast majority of their articles are written with the common shareholder's interests in mind, rather than those of the preferred shareholder - which, on occasion, might not be in alignment. Also, as I mentioned above, other SA members might view their conclusions in a different light. When this occurs, I simply try to figure out which argument sounds the most logical. Sorry, that's the best I have to offer.
Consequently, rather than attempting to digest and understand complicated financial statements, which I realize I won't be able to realistically accomplish with any degree of accuracy, I usually visit two websites to get an abbreviated, yet broad-based view of the particular company I'm considering making an investment in. They are Yahoo Finance and Finviz. I have cued each to open to the financials of SB.
Above is a screenshot of SB's 5-year chart, which, as far as I'm concerned, is the picture of a company that is in deep distress, whose share price has fallen dramatically along with the dramatic fall in drybulk rates over the past two years. Much of this is a result of China's slowing economy. However, since its January low of $0.39, it has rebounded somewhat to its current price of $1.16, which is modest, although still distressingly low BDI rate. The Baltic Dry Index:
The Baltic Dry Index (BDI) is an economic indicator issued daily by the London-based Baltic Exchange. Not restricted to Baltic Sea countries, the index provides "an assessment" of the price of moving the major raw materials by sea. Taking in 23 shipping routes measured on a time charter basis, the index covers Handysize, Supramax, Panamax, and Capesize dry bulk carriers carrying a range of commodities including coal, iron ore and grain."
Above is a screenshot taken from a Finviz view of SB's present financial highlights. The company's current market value is a paltry $105.30 million. It lost $73.80 million on $120.00 million in sales. Its stock price over the past year has fallen by 66.01%, yet has risen by 186.05% during this past 1/2 year. And is surprisingly up by 19.42% this past month. I also find its short-term debt/equity a manageable 1.00, while its long-term debt/equity is a tad lower at .95.
According to the Yahoo chart above, SB placed in the middle of its peer group, which are frankly all on life support. I wonder how many will survive long enough for BDI rates to recover to the point that drybulk shipping becomes profitable again. The peer comparisons charted above are: Navios Maritime Holdings (NYSE:NM), Box Ships (NYSE:TEU), Eagle Bulk Shipping (NASDAQ:EGLE), Scorpio Bulkers (NYSE:SALT), and Star Bulk Carriers (NASDAQ:SBLK).
The final chart illustrates the 3-year price movement of the preferred issue SB-D we are interested in acquiring. This is the chart of a company preferred, which has performed as well as the current BDI rates would allow. Apparently, SB is entirely dependent on today's drybulk shipping rates, which at this time is anything but good. Although of late SB-D has almost tripled in price from its horrendous low in January, in my opinion, it is not out of the woods by any stretch of the imagination.
My bottom line decision is to look at charts of the past few years' performance of the company's common shares, coupled with whether or not said company is, over time, prospering or losing market value. Ultimately, I have to decide how safe this company is from an existential standpoint rather than how well its share price will perform over the next quarter or the following year.
Ultimately, I must decide whether or not I believe in the long-term survivability of SB, which I view as questionable as long as the present drybulk market remains as depressed as it has been. The good news is that its long and short-term debt appears manageable and its common and preferred share prices have rebounded a bit during this past half year. However, I believe its survivability is still questionable and I'd be loathe to gamble on an investment in this company at this time. The upcoming will certainly be important to follow:
Monaco, Monaco - July 22, 2016 -- Safe Bulkers, Inc. (the Company) , an international provider of marine drybulk transportation services, announced today that it will release its results for the quarter ended June 30, 2016 after the market closes in New York on Thursday, July 28, 2016. On Friday, July 29, 2016, at 8:30 A.M. Eastern Time, the Company's management team will host a conference call to discuss the financial results.
Disclosure: I am/we are long SB-D, NM-G, NM-H.
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.
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