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Safe Bulkers: Safe 9% Yield Bulking

Mar. 06, 2021 9:16 AM ETSafe Bulkers, Inc. (SB), SB.PR.C, SB.PR.D35 Comments


  • Safe Bulkers is benefiting off of rising charter rates, which amid decreasing financing costs could lead to record net income levels in 2021.
  • The common stock is trading at a very humble valuation compared to its industry peers, making it worth holding considering its improving underlying performance.
  • Despite this, the common stock is indeed risky, lacking prospects for tangible capital returns.
  • Either as a hedge to the common stock or a standalone source of income, the preferred shares yield a juicy 9%, which is well-covered by EBITDA, adding a layer of predictability that the common stock lacks.
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Elevator pitch

With the globe slowly but gradually coming out of the COVID-19 pandemic, charter rates for dry bulk carriers have been improving, benefiting companies in the industry such as Safe Bulkers (NYSE:SB). The company has been growing its fleet, managing its debt prudently, while management's ~50% shareholding aligns its interests with common shareholders. Charter rates have had an excellent start entering 2021, which should result in Safe Bulkers delivering robust cash flows this year as well.

The common stock, while risky amid a variable rate environment in terms of charter rates, is likely subject to a decent upside amid a relatively humble valuation. To reduce the underlying risks attached to holding the common shares, investors can combine (or hold individually) the company's 9%+ yielding preferred shares. The preferred shares not only provide a hefty yield for income-oriented investors in the currently yieldless world, but also the predictability of their cash flows makes for a good hedge against the common stock too.

The business

Safe Bulkers is a relatively small player in the dry bulk transportation business, owning 42 dry bulk vessels with an aggregate capacity of 3,862,000 DWT (deadweight tonnage).

The company's vessels are used to transport bulk cargoes, particularly coal, grain, and iron ore, worldwide. Dry bulk companies charter their fleets primarily through 2 ways: Time charters and Voyage charters.

Unlike voyage charters, which are contracts to carry a specific cargo from a load port to a discharge port, a time charter is a contract to charter a vessel for a fixed period of time at a set daily rate and can last from a few days up to several years. The vessel performs one or more trips between load ports and discharge ports. Under time charters, the charterer pays for most voyage expenses related to the cargoes, while the shipowner (Safe Bulkers) pays

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This article was written by

Nikolaos Sismanis profile picture

Hi there!

I hold a BSc in Banking and Finance. Here, on Seeking Alpha, I cover a variety of growth stocks and income stocks, including identifying those with the highest expected return potential, and a solid margin of safety.

Currently contributing as Promoting Author to the "Wheel of Fortune" marketplace.

Feel free to contact me at any time, and follow me here on S.A. for regular content and updates!

Happy investing!


Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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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Comments (35)

tbone profile picture
@nickolaos sismanis thanks for highlighting this firm and the attractiveness of the PFD shares as an income producing security. If I understand the figures correctly, through the 12 mos ending 12/2019 the PFD dividends were covered by adjusted EBITDA by more than 8 times ? Was this level of coverage maintained into 2020 ? Given the economic outlook this seems like a safe bet for straight income for the next several years.
Tudor Invest Holdings profile picture
@Nikolaos Sismanis

Thanks for the article. Interesting read.

It would be useful if you had included a portion on what is the average contract duration of the fixed time charters and the total amount it has in the charter backlog. That is ultimately what will determine if the dividend is fairly safe.
The operative word being "fairly", as no dividend in any company is safe.

Even SFL, which does have an average charter contract duration of more than 7 years, and a backlog of over $2.3 billion has proven that it is not safe.

Best regards
Nikolaos Sismanis profile picture
@Tudor Invest Holdings Thank you for reading Lasse, always glad that you are stopping by :)

I believe I mentioned "...the company's charters generally have an average remaining charter duration of around five months", but you are right I should have gone deeper here, and on the backlog as well!

I hope all is well with you!

Best regards,
If the preferred are a good deal, why don't you own them? I guess it can be a double edged sword in that if a stock owner advocates a stock, readers think the article is biased and if the author does not own an advocated stock, the content is questioned. Understand that each reader needs to do their own due diligence but I like to see an advocating author put their money where their words are.
Thank you for the idea and info.
Nikolaos Sismanis profile picture
@user43812966 Hi, we hold a ton of shipping stocks and their preferreds. SB just happened not to be one of those. You can see this through many of our articles. If anything, not holding shares here makes our analysis less biased.
Joeri van der Sman profile picture
I like the preferreds as a buy.

SB common is one of the most expensive bulk stocks out there versus NAV, not cheap at all.
@Joeri van der Sman Scrap value is the same as market cap. Still has a long way to go. I wouldn't call that expensive. The common will outperform the prefs moving forward.
Landlord Investor profile picture
@Joeri van der Sman If Vessel Value is $942M vs $801M EV as author says below, how is that expensive? Do you agree with that VV estimate?
Landlord Investor profile picture
Any sense for the value of their fleet via Vessels Values versus their EV?
Nikolaos Sismanis profile picture
@Landlord Investor Should be $942 million of net vessel value on the balance sheet (not historical book value). EV is $801 million.
Landlord Investor profile picture
@Nikolaos Sismanis Thanks for providing that very valuable data point. Does $942m include charter value or is that without charters?
Nikolaos Sismanis profile picture
@Landlord Investor I am not 100% sure about it, but I believe it's without them.
elwalle profile picture
Great info......thanks
Thank you for the article.
1. Half of fleet vessels have scrubbers that produce huge revenues (about 4.500 usd/sailing day at current bunker prices for kamsarmaxes). We have about 220 sailing days per year. Scrubber revenues will increase even more as we move out of covid and demand for distillates increases.
2. Capes are only 4, of which 2 are in 10-year charter period in very favorite terms and the 3rd has scrubbers.
3. IMO regulations for 2023 and 2030 are/will affect existing fleet positively (low orderbook, reduced speed for vessels with high fuel consumption). Most of the vessels are japanese-made.

The current very high Kamsarmax/Panamax and Ultramax/Supramax freight rates are due to disruptions in production and supply lines. For example, China had to import large quantities of grains. If you go for the common stock you have to be diligent for possible inverse of these trends in the next few months.
For medium term investors, there should be no worries for 2022 and 2023 as orderbook is minimal.
@Marco V. Agree with your comments, what do you mean by disruption of supply and production lines, as far as i know china is in the process of rebuilding their pig livestock (following desease ) combined with good grain output they import record volumes.
@Athaneco Apart of livestock rebuilding, there have been drοughts and floodings in wheat producing areas in China. Moreover, due to lockdowns+illness, workers weren't able to work in the fields.
It looks like chinese authorities tried to hide the huge deficit that was created.
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