Printed on October twentieth, 2022 by Nikolaos Sismanis
The transport business is kind of advanced, and extremely cyclical. Whether or not it involves transporting containers, dry bulk similar to grain, or vitality sources like crude oil and liquefied pure gasoline (LNG), the efficiency of every transport firm relies on numerous macro-economic elements.
The smallest change in both the demand for transportation or the underlying provide/availability of vessels can have main results on transport charges. Additional, corporations within the business have traditionally been fairly leveraged, carrying extra threat.
Thus, it’s no surprise transport corporations lack enticing dividend development monitor information. However, there are particular corporations within the house whose qualities and dividend prospects stand out.
With all this in thoughts, we created an inventory of over 40 transport shares, together with vital monetary ratios similar to dividend yields and price-to-earnings ratios.
You may obtain your free transport shares listing by clicking on the hyperlink beneath:
Our transport shares listing was derived from two main ETFs that monitor the worldwide transport business:
- ProShares Provide Chain Logistics ETF (SUPL)
- SonicShares International Transport ETF (BOAT)
Under, we study 7 such transport shares, whose dividends we see as comparatively safer in comparison with the remainder of their friends. They’re listed in no specific order.
Desk of Contents
Transport Inventory #7: Danaos Company (DAC)
Danaos Company is the second-largest publicly traded pure containership firm. With a market cap of $1.2 billion, Danaos solely comes behind Atlas Corp. (ATCO). The corporate owns a fleet of 71 containerships aggregating 436,589 TEUs, which it leases to containership liners similar to MSC and Maersk. Danaos’ enterprise mannequin is lean, as the corporate has nothing to do with truly working these vessels, leading to high-margin and predictable money flows.
The corporate had a tough time through the previous decade, with an oversupply of containership vessels shocking containership charges and, thus, leasing charges. The COVID-19 pandemic brought about a port congestion disaster amongst different provide chain bottlenecks, leading to surging freight charges that had been 9 to 10 instances larger than their pre-pandemic ones. Danaos executed impeccably on this chance by securing long-term multi-year charters at report charges.
Whereas freight charges have at present been corrected considerably (they nonetheless stay greater than double their pre-pandemic ranges), Danaos’s future money flows stay locked in close to report ranges, with a few of them extending as far out as 2028! The corporate’s constitution backlog at present stands at $2.3 billion, virtually twice the corporate’s market cap – and keep in mind, these are ultra-high margin money flows.
Supply: Investor Presentation
The corporate has already taken benefit of its report income to repay its debt prematurely, decreasing its leverage to a really wholesome 0.9X. For context, leverage was 7.3X again in 2017. Moreover, the corporate’s ebook worth per share primarily based on its fairness worth on the stability sheet now stands near $116. Nevertheless, this doesn’t mirror Danaos’ income backlog, which, if discounted again in accordance with my estimates, ought to enhance the BVPS to anyplace between $140 and $170.
Administration has been overtly well-aware of the mismatch between the inventory worth and the corporate’s ebook worth throughout post-earnings calls. In response, they’ve launched a $100 million inventory repurchase program, 25% of which has already been accomplished.
Shares are at present yielding a considerable 5.2%, with Danaos solely paying out round 10% of its adjusted earnings (excluding the modifications within the worth of its minority holding in ZIM Built-in Transport Companies (ZIM)). Thus, Danaos ought to retain satisfactory money to fund its forthcoming fleet growth whereas rewarding shareholders satisfactorily.
With Danaos having fun with multi-year money move visibility, buying and selling at a considerable low cost to NAV, shopping for again inventory, and paying a large yield that may be very well-covered, the corporate at present presents probably the greatest threat/reward alternatives in transport, in our view.
Transport Inventory #6: SFL Company Ltd. (SFL)
SFL Company has one of the crucial diversified fleets in transport, having publicity on a number of business fronts, together with transporting crude oil and oil merchandise, dry bulk and containerized cargos, in addition to offshore drilling actions. The corporate owns 18 oil tankers, 15 dry bulk carriers, 34 container vessels, six automotive carriers, and two ultra-deepwater drilling items.
Much like Danaos, SFL just isn’t truly concerned with working any of its property. They’re as a substitute secured below long-term contracts. Since SFL has publicity to a number of asset lessons, its leasing charges fluctuate primarily based on the underlying market circumstances of every market phase. As an illustration, there might be a buying and selling interval through which containerships have low absorption charges, however demand for tankers is growing.
This, mixed with the corporate negotiating longer-than-average leasing contracts, has been an important technique to de-risk money flows. SFL’s contracted revenues now stand at $3.7 billion, that includes a weighted remaining constitution time period of 6.8 years.
Supply: Investor Presentation
In actual fact, exactly due to its diversified asset base and multi-year leases, SFL has been one of the crucial beneficiant dividend payers within the business. Dividends haven’t been constant, with occasional “cuts” which occurred for SFL’s fleet development to be financed. Nonetheless, they’ve all the time remained substantial with shareholder worth maximization in thoughts – that’s a uncommon trait within the business.
The dividend has now been elevated for 4 consecutive quarters, with the present quarterly charge implying a yield of 9.5%. Based mostly on our earnings-per-share estimate for fiscal 2022, SFL’s payout ratio stands near 77%.
Contemplating that considered one of its rigs is marketed for brand new constitution alternatives in 2023 with a wonderful buying and selling atmosphere within the vitality sector, there’s probably extra room for the dividend to develop within the coming quarters.
Click on right here to obtain our most up-to-date Positive Evaluation report on SFL (preview of web page 1 of three proven beneath):
Transport Inventory #5: Costamare Inc. (CMRE)
Costamare’s fleet consists of containerships and dry bulk vessels. Particularly, its fleet contains 76 containerships with a complete capability of round 557,400 twenty-foot equal items and 45 dry bulk vessels with a complete capability of round 2,435,500 deadweight tons.
The corporate has paid 47 consecutive quarterly widespread dividends since its IPO, which has been doable as a consequence of using an analogous multi-year chartering technique on the subject of its containerships, just like that of Danaos.
Significantly, Costamare’s contracted revenues for its containership fleet quantity to $3.3 billion, with their TEU-weighted common remaining time constitution period standing at about 4.0 years. Wonderful money move visibility at nice charges ought to present virtually completely predictable containership revenues, at the very least via 2024.
Supply: Investor Presentation
The corporate’s dry bulk vessels function within the open market, which is at present below strain primarily as a consequence of China’s conservation business struggling. However, they need to not produce money-losing outcomes at present charges.
Shares of Costamare at the moment are hooked up to a 4.7% yield, and just like Danaos, the payout ratio ought to stand simply over 10%, which means present dividend payouts must be very well-covered. Accordingly, the corporate could pay a considerable particular dividend this 12 months, just like final 12 months’s $0.50, which was greater than double the widespread annual dividend.
Costamare’s administration can also be nicely conscious of the present undervaluation of its shares. It is a constant theme amongst containership house owners because the market appears to be ignoring their multi-year charters, specializing in the precise declining spot charges. Accordingly, final quarter, the corporate repurchased round $60 million price of widespread shares, representing 3.8% of complete widespread shares.
Roughly $90 million for widespread and $150 million for most popular shares stays approved to be repurchased.
Associated: 6 Most well-liked Shares To Purchase Proper Now, And 1 To Keep away from
It’s price noting that almost 60% of the corporate’s shares are owned by insiders (the sponsor household), who’ve reinvested $130 million again into the corporate via Costamare’s DRIP program. Thus, their pursuits with widespread shareholders are completely aligned.
Transport Inventory #4: KNOT Offshore Companions LP (KNOP)
KNOT Offshore Companions LP is likely one of the most unusual publicly traded transport partnerships. The partnership fleet incorporates 17 shuttle tankers. Shuttle tankers are a distinct segment within the transport business and are fairly restricted in availability. Solely round 100 shuttle tankers exist on the planet as we speak.
The partnership’s total operations are fairly passive. KNOT has just one worker and govt, its CEO Mr. Gary Chapman, who oversees its property and ensures that every one tankers enter worthwhile constitution intervals, maximizing their worth via long-term contracts.
Demand for shuttle tankers may be very risky as a result of the vitality business may be very risky. Accordingly, the corporate’s charters are considerably shorter-term than these we noticed containership house owners land. KNOT’s remaining ahead contracted income stands at $487 million, with a mean remaining constitution interval of 1.7 years. Charterers’ choices to increase charrs may push this by an extra 2.4 years, on common.
Supply: Investor Presentation
KNOT has made a reputation for itself being a dependable high-yield inventory. Distributions have by no means been reduce since its public itemizing in 2013, with the present annual distribution charge of $2.08/unit remaining steady since 2016. On the inventory’s present worth ranges, it implies an enormous yield of 13.4%, which is consistent with its historic common.
KNOT distributable money flows per share have traditionally hovered between $2.50 and $4.50 primarily based on the constitution charges the partnership is ready to negotiate upon each renewal. We anticipate the corporate to ship DCFU of $2.20 as dry dockings and different challenges have pressured its backside line recently.
With the order ebook for shuttle tankers shrinking and the present atmosphere within the vitality market pointing in direction of a positive panorama for the shuttle tankers, DCFU may re-expand from subsequent 12 months, decreasing the chance of a distribution reduce.
Nonetheless, we stay prudent as distributions might be certainly slashed following any unexpected occasion within the brief time period amid razor-thin protection. KNOT’s large yield ought to justify the underlying dangers, nonetheless.
Click on right here to obtain our most up-to-date Positive Evaluation report on KNOP (preview of web page 1 of three proven beneath):
Transport Inventory #3: International Ship Lease, Inc. (GSL)
You may consider International Ship Lease as Danaos’ youthful sibling. It’s additionally a pure play on containership lessors. The corporate’s fleet underwent an incredible transformation final 12 months. The corporate went on to accumulate 23 vessels, increasing its complete fleet to 65 vessels.
In addition to the truth that these new vessels grew to become instantly accretive to earnings, the acquisition occurred simply earlier than containership charges exploded final 12 months. The corporate took the chance to increase the legacy charters on these vessels at remarkably larger charges – they now lengthen even additional out from these of Danaos.
Additional, in late August, the corporate introduced an enormous extension for six ECO 6,900 TEU trendy ships with Hapag-Lloyd. These leases received’t even start producing money flows -which are additionally significantly larger than their earlier ones- till late 2023 to late 2024. In actual fact, these leases have now secured predictable revenues for 5 years all over 2029!
Supply: Investor Presentation
GSL at present gives one of the best money move visibility in transport by far, with earnings set to develop through ironclad leasing contracts (no significant monitor within the business of re-negotiations that went in opposition to lessors). And, whereas the inventory at present yields a considerable 8.6%, dividends solely account for round 20% of its earnings.
The corporate may enhance its dividend, but it surely’s probably that extra earnings can be used to purchase again inventory on a budget. In actual fact, as an example how ridiculously low cost GSL is, the lease extensions talked about earlier, which contain solely six of the corporate’s 65 vessels, added $393 million in adjusted EBITDA backlog, which equates to 61% of the corporate’s present market cap.
With its constitution backlog approaching almost $3.0 billion following this extension, GSL is about to generate its present market cap as web revenue 3-4 instances over within the coming years. Thus, the corporate has already began repurchasing shares together with its senior notes fairly aggressively.
Transport Inventory #2: Euroseas Ltd. (ESEA)
If GSL is Danaos’ youthful sibling, Euroseas is the youngest one within the household. The corporate is a pure play on containership as nicely, proudly owning simply 18 vessels. They comprise ten feeder containerships and eight intermediate containerships, with a cargo capability of 58,871 TEU.
Much like its friends, the corporate took benefit of the sturdy tailwinds the business discovered itself having fun with final 12 months, locking in contractually-secured forward-looking revenues at wonderful charges. Euroseas has already secured vessel employment for its two new builds that received’t even come on-line till mid-2023.
Supply: Investor Presentation
Once more, following the identical theme that’s in line with Danaos, Costamare, and International Ship Lease, Euroseas is at present extremely undervalued. Shares are presently buying and selling at $21.50. Now contemplate this: Merely primarily based on Euroseas’ contracted days (which assumes zero revenues for its “Open Days” however consists of all prices), the corporate is about to earn greater than $22.5/share over the 2½ years from Q3 2022 to 2024.
Along with these earnings over the subsequent 2½ years, on the finish of 2024, the incremental NAVof Euroseas’ fleet (which assumes scrap costs for the prevailing fleet at $400/lwt regardless of the present ones being slightly below $600/lwt) together with 90% of contract costs for the 9 new buildings after repaying the excellent debt will stand at about $11.5/share. Thus, even below such a brutal draw back situation, Euroseas must be buying and selling at the very least near $34/share.
Administration forecasts that if its open days are chartered at even half the speed of its contracted days, its earnings over the subsequent 2½ years could be boosted by about $12.5/share (56%) to about $35/share leading to complete worth in extra of $46/share. That’s the upcoming worth creation and doesn’t even embrace the precise NAV of its fleet.
Once more, with administration being nicely conscious of such a extreme undervaluation, share repurchases are at present complementing the inventory’s 9.6% yield. The corporate’s share repurchase program of as much as $20 million accounts for almost 13% of its present market cap.
Transport Inventory #1: Scorpio Tankers Inc. (STNG)
Scorpio is the one pure tanker play in our 7-stock finest transport shares listing. It is because most container ship lessors seem to characteristic outsized threat/reward funding circumstances. However, tankers have already entered what seems to be a super-cycle.
Since Western allies imposed extreme sanctions on Russia, demand for transporting crude oil abroad has surged. Tankers now should voyage considerably larger distances as nicely, which means that elevated charges final significantly longer too.
With a fleet of 113 tankers, Scorpio is the world’s largest product tanker proprietor, which locations the corporate within the excellent spot to make the most of the continued market scenario. Tanker charges have already greater than doubled in comparison with final 12 months. Additional Russian sanctions received’t be going anyway any time quickly.
These elements, mixed with the truth that the tanker order ebook is at present at simply 5% of the worldwide tanker fleet (i.e., restricted provide of tankers sooner or later), Scorpio might be printing money for years to return.
Consensus estimates for Q3 2022 level towards EPS of $3.91, and that’s earlier than the newest surge in charges. whereas charges may proceed surging as we’re headed towards winter, even at present charges, Scorpio might be incomes north of $15/share/12 months over the medium time period – at the very least as the continued battle in Ukraine persists, nonetheless, in my opinion.
Scorpio has not began payout out significant dividends regardless of these developments, with shares now yielding lower than 1%. Administration has as a substitute been on a inventory repurchase spree recently, as shares have remained undervalued in opposition to future earnings projections. I consider that after Scorpio begins receiving monster money flows within the coming quarters, we are going to probably see a way more substantial dividend as nicely.
The transport business is likely one of the riskiest, which means transport shares will be risky. Investing in transport shares requires intensive information of every firm, and even then, modifications within the macro atmosphere can wildly swing sentiment. Threat-averse buyers similar to retirees counting on dividend revenue, are typically discouraged from investing in transport shares.
However, the transport shares offered right here include nice qualities. Excluding Scorpio, the businesses we mentioned at present supply sizable dividends, with most being well-covered.
We have now particularly chosen transport shares that supply multi-year constitution protection, and an above-average margin of security for his or her dividends. Nonetheless, for those who do put money into the transport business, it is very important monitor your investments.
At Positive Dividend, we frequently advocate for investing in corporations with a excessive likelihood of accelerating their dividends every 12 months.
If that technique appeals to you, it could be helpful to flick thru the next databases of dividend development shares:
The most important home inventory market indices are one other strong useful resource for locating funding concepts. Positive Dividend compiles the next inventory market databases and updates them month-to-month:
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