Let's see how Safe Bulkers (SB) has performed since my last update on September 20, 2016, Lucrative Opportunities Present In Volatile Sectors Of The Economy: An Update.
Though I hope you will read the original linked article in full, my bottom line assessment of Safe Bulkers and buy recommendation at the time were as follows:
As a preferred investor, my one and only concern is about the long-term viability of each of these companies, which will not be determined by their latest quarterly financial reports. The real bottom line of their ultimate success or failure rests upon external factors beyond their control. When, and if, the BDI rates improve sufficiently, and how quickly this happens will determine whether or not the company ultimately survives. Frankly, neither I nor any of the experts have the answer. Yet, rates are slowly improving, and hopefully this trend will continue and accelerate.
However, according to this three-month update, it appears that the investors in the company's commons and preferreds are betting the company will survive and prosper. I'm hoping they are correct.
Let's see how SB's commons have performed over the past quarter since I wrote the previous update. Because of the greater volume of common shares traded as opposed to the limited liquidity of most preferreds, I find the commons to be a better indicator of a company's overall performance.
It appears that over the past three months, SB's share price movement has been trending in the right direction. On September 2, it traded at $1.31, and now it's priced at $1.44. That's an increase of $0.13. Encouraging, but considering the state of the drybulk shipping sector, it still faces stiff headwinds.
Now let's compare SB's share performance over the past three months in relation to a number of its peers:
I'm pleased to announce that SB's share price performance over the past three months was at the very center of its peer group, and that it outperformed the S&P 500 during this time. The above chart includes the following drybulk shipping peers of SB: DryShips (NASDAQ:DRYS), Navios Maritime Holdings (NYSE:NM), Scorpio Bulkers (NYSE:SALT), Star Bulk Carriers Corp. (NASDAQ:SBLK), and Eagle Bulk Shipping (NASDAQ:EGLE).
Before we discuss SB's future prospects, let's see how its preferreds have fared during the past three months. The following charts are provided by MarketWatch:
Ah, my old friend the "fail to redeem" clause has popped up again, guaranteed to cause controversy with some of my followers. It appears that the B Series carries that clause, which explains the price discrepancy between it and the C and D Series. Notice, the price of the B remains substantially higher and has increased a bit from there to its present $23.50. Accordingly, so have the C & D preferreds, both exhibiting minimal price increases. I believe this displays that my position is a contrarian one and that the "fail to redeem" clause appears to make the B Series more valuable. However, I remain steadfast in my opinion that the B Series is a very bad buy in relation to the C and D Series, which I admit is contrary to popular opinion as demonstrated by the same price discrepancy. And as I stated in the previous update:
Time will tell. What I am certain of, is that if the shares are redeemed in a timely fashion, I will continue to receive dividend payments at the effective higher yield I've had since the day I bought them, as displayed above.
Conversely, should SB fail to redeem as required and incur the costly penalties, I believe all the preferreds - series B, C, and D - will suffer accordingly.
Now for a little forward guidance
As a preferred investor, my one and only concern is about the long-term viability of the company, which will not be determined by its latest quarterly financial report. The real bottom line of its ultimate success or failure rests upon external factors beyond its control. When, and if, the BDI rates improve sufficiently, and how quickly this happens will determine whether or not this company ultimately survives. Frankly, neither I nor any of the experts have the answer. Yet, rates are slowly improving, and hopefully this trend will continue and accelerate.
However, according to this three-month update, it appears that the investors in this company's commons and preferreds are betting it will survive and prosper. I'm hoping they are correct.
Now for those intrepid preferred investors with an appetite for risk, let's see which of SB's preferreds are the best buy.
I'm sticking to my guns; I don't believe the Fail to Redeem clause makes the B Series any more valuable, and therefore, in my contrarian point of view, I deem it not only the best choice, but the worst buy by far. As I explained in a previous article concerning TNP, which has issued B & C Series preferreds that contain the Fail to Redeem clause, and a D Series that does not:
I countered with what's considered a contrarian view, one which I still hold today. Should the B be called in a timely fashion, I contend that my D shares would be considered more valuable, because TNP displayed the fiscal strength to be able to redeem the shares as required. And should it redeem the C series in a timely fashion, I expect my Ds would benefit even more. I'm aware that Tsakos might have to issue additional commons and/or preferreds to pay for this call, which might or might not prove advantageous, were this to occur. Time will tell. What I am certain of is that if the shares are redeemed in a timely fashion, I will continue to receive dividend payments at the effective higher yield I've had since the day I bought them, as displayed above.
Conversely, should TNP fail to redeem as required and incur the costly penalties, I believe all the preferreds - series B, C, and D - will suffer accordingly, but I will have been invested at $1.13 less per share, or more succinctly, I would be at risk for $1.13 less per share.
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.
Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.