These shipping stocks could benefit from severe disruptions in global supply chains
Skyrocketing shipping prices, exacerbated by limited vessel supply, could bode well for some of analysts' favorite shipping stocks.
Global supply chains have been severely disrupted this year by a slew of issues right as a resurgence in trade and strong demand for commodities meant more goods needed to be moved.
In April, one of the world's largest container ships became wedged in the Suez Canal, halting traffic for nearly a week. The waterway is one of the busiest in the world, with about 12% of trade passing through it.
The massive cargo ship dominated headlines, but there have been several other disturbances in global trade. In a recent report, JPMorgan analysts pointed to ongoing bottlenecks such as port congestion as well as a shortage of containers and vessels.
"In particular, Yantian (Shenzhen) port's incident could potentially evolve into Suez Canal Incident 2.0, leading to shipment delays, longer container turnaround time and container shortage/repositioning issues," the bank wrote.
The Yantian port in Shenzhen, China is one of the busiest in the world. The region was hit by an uptick of Covid cases in June, which caused massive delays at the port, jacking up shipping prices.
As parts of the world rebounded from the pandemic, a flurry of spending led to a shortfall of containers. That drove up prices and created massive delays in shipping goods from Asia to elsewhere. JPMorgan said the demand for goods has continued to be supported by an improving global economic outlook.
Research firm TS Lombard noted that commodities have surged as Chinese demand recovered. Demand for commodities from oil to lumber to corn has shot up this year as economies reopened and vaccination rates climbed — although prices have been volatile recently.
"Shipowners are benefitting from the booming commodity trade. Vessel earnings have been at their highest level in a decade so far in 2021 … owing to the rebound in trade volumes, particular minerals and grains into Asia, as well as to strong restocking of iron-ore and coal inventories by China," the firm said.
It also said as much as 72% of the world's iron ore is transported to China, boosting the shipping sector.
Value of ships will rise
Port congestion means that ships will be temporarily held up, keeping vessel supply limited, TS Lombard said.
And that may not be resolved any time soon. According to JPMorgan analysts, new vessel orders will not be delivered until 2023, "at the earliest time frame."
High demand and tight supply, will cause the value of ships to rise. Ships are considered assets for a shipping company, as they generate cash flow.
The uptick in the value of the vessels will therefore drive up the net asset value of companies, which is the value of assets minus liabilities. That in turn is set to drive up stock prices, according to TS Lombard.
Here are the stock picks from both firms, in reports published in June:
Here are JPMorgan's stock picks:
- Chinese container shipping company Cosco Shipping
- Hong Kong-based Orient Overseas, parent company of container shipping firm Orient Overseas Container Line
Here are TS Lombard's stock picks:
Investing in Transportation Stocks
Updated: Aug. 23, 2021, 2:33 p.m.
Moving people and things from place to place is big business, and many different transportation companies can take you and your stuff wherever you want. By investing in the stocks of those companies, you can profit from transportation.
More than a year after the onset of the COVID-19 pandemic, transports are still reeling from the disruption. Ports are jammed, shipping rates are high, and moving goods from point A to point B has never been more complicated. Below, we examine the top transportation stocks and explain how best to invest in them in the context of the pandemic.
What are transportation stocks?
Transportation stocks are those of companies categorized as industrial businesses, which include a wide array of heavy equipment makers and transportation services providers. The following types of businesses are included in the transportation industry:
- Airlines, which fly passengers.
- Air freight companies, which fly cargo.
- Railroads, which move passengers and freight by train.
- Trucking companies, which move goods by road.
- Marine shipping companies, which move products by sea.
- Logistics companies, which use a variety of transportation modes to move things quickly and efficiently.
- Service providers, such as airport operators, marine ports, and private toll-road companies, which help other companies to provide all of these modes of transportation.
Some companies that move things don't get treated as transportation stocks. For example, pipeline companies that move crude oil, natural gas, and water are classified as energy or utility stocks.
COVID-19's effect on the transportation industry
The coronavirus pandemic significantly impacted the global transportation industry, and its aftereffects are likely to linger for years. Airline revenues declined by 70% or more in 2020, and demand for air travel is not expected to return to pre-pandemic levels until the second half of the decade. During the pandemic, American Airlines(NASDAQ:AAL) was compelled to assume $22 billion in new debt in order to remain solvent.
Other transportation sectors have fared better. The pandemic-related growth in e-commerce has increased shipping volumes for both UPS(NYSE:UPS) and FedEx(NYSE:FDX). Post-pandemic, e-commerce is expected to remain popular, which means the revenues of these companies will probably continue to grow.
Domestic transportation has recovered faster than international travel and commerce. That dynamic should continue for the foreseeable future, favoring trucking companies, railroads, and tourism-focused discount airlines over large-boat shippers and airlines that heavily rely on international fares.
Some top-notch transportation stocks
Among the best-known transportation stocks are the following:
- United Parcel Service. An industry leader in package delivery, UPS ships billions of packages and documents every year by land, sea, and air. UPS also maintains a network of stores, customer centers, and drop boxes.
- Union Pacific(NYSE:UNP). This industrial railroad has an extensive network of tracks in the western two-thirds of the U.S., with several different routes between the Mississippi River and the Pacific Ocean. Union Pacific ships everything from coal and chemicals to crops and cars.
- J.B. Hunt Transport Services(NASDAQ:JBHT). With an extensive coverage network, this trucking company serves the U.S., Canada, and Mexico. J.B. Hunt's partner network also offers modes of transportation other than trucking, which ensures that the company's customers can transport things to where they want them in the most efficient way possible.
- Kirby(NYSE:KEX). This U.S. tank barge operator uses the entire Mississippi River watershed as a conduit for moving goods through the U.S. heartland. Kirby delivers bulk liquids to customers on the West, East, and Gulf coasts and in Alaska and Hawaii.
Image source: Getty Images
How to evaluate top transportation stocks
To assess the merits of transportation companies, keep the following considerations in mind.
Fixed and operating costs
Transport companies tend to have high fixed costs, which are the costs that remain the same regardless of the quantity of goods or services sold. The best transportation companies keep their fixed costs under strict control.
A transportation company's operating ratio -- its operating costs as a percentage of revenue -- is also important. Operating costs differ from fixed costs because they vary in direct proportion to the quantity of goods or services sold.
Most transportation companies use a lot of energy, so their financial performances are directly linked to the price of crude oil. Whether the company needs jet fuel for planes, diesel fuel for trucks and trains, or a combination of electricity and natural gas to operate industrial equipment, the best transportation companies prioritize maximizing their fuel efficiency.
With high fixed costs, transportation companies need a lot of money up front to buy or create the equipment they need. Many choose to finance these capital expenditures using long-term debt, but the best transportation companies are careful to keep their debts at manageable levels.
You can evaluate a company both on a standalone basis and in comparison to its competitors. Competition in the transportation sector can be fierce, with many companies fighting to serve the same groups of customers. Using the U.S. airline industry as an example, carriers such as American Airlines, Southwest Airlines(NYSE:LUV), Delta Air Lines(NYSE:DAL) and JetBlue(NASDAQ:JBLU) are all competing to take you where you want to go.
An important part of the economy that is greatly influenced by global recession and expansion trends.
A wide range of businesses of all different shapes and sizes that contribute to different parts of the project process.
Focused on one customer, the U.S. government, these companies offer investors some predictability.
Invest in some of the best organizations that keep the world moving, creating, innovating and building.
Are transportation stocks right for you?
When the economy is strong, transportation companies tend to perform well because plenty of people and businesses want to travel and ship things. But travel and shipping demand can fall dramatically during tough economic times, so transportation stocks are best suited to investors who are comfortable with cyclicality.
Transportation stocks provide direct portfolio exposure to the state of the economy and have a reputation for signaling whether good times or bad are ahead.
Southwest Airlines Earnings: Another Stinker
The once-mighty airline has fallen into mediocrity this year.
Adam Levine-Weinberg | Oct 23, 2021
Southwest Airlines (LUV) Q3 2021 Earnings Call Transcript
LUV earnings call for the period ending September 30, 2021.
Motley Fool Transcribing | Oct 22, 2021
American Airlines Group (AAL) Q3 2021 Earnings Call Transcript
AAL earnings call for the period ending September 30, 2021.
Motley Fool Transcribing | Oct 21, 2021
Union Pacific Corporation (UNP) Q3 2021 Earnings Call Transcript
UNP earnings call for the period ending September 30, 2021.
Motley Fool Transcribers | Oct 21, 2021
Will Airlines Send the Stock Market to New Highs?
Earnings from major carriers have a lot to say about the health of the economy.
Dan Caplinger | Oct 21, 2021
After FedEx's Warning, What Can Investors Expect From UPS?
Looking ahead to a much-anticipated earnings report from the package delivery giant.
Lee Samaha | Oct 20, 2021
Southwest Hits Turbulence; James Bond Is Back in Theaters
A look at stock market news.
Chris Hill | Oct 15, 2021
JB Hunt Transport Services Inc (JBHT) Q3 2021 Earnings Call Transcript
JBHT earnings call for the period ending September 30, 2021.
Motley Fool Transcribers | Oct 15, 2021
Delta Air Lines Returns to Profitability
The airline giant's underlying business trends improved again last quarter.
Adam Levine-Weinberg | Oct 14, 2021
Delta Air Lines (DAL) Q3 2021 Earnings Call Transcript
DAL earnings call for the period ending September 30, 2021.
Motley Fool Transcribing | Oct 14, 2021
- Hi point 9mm drum magazine
- Colorado springs election results 2017
- Weider home gym workout poster
- 1 corinthians 11 1 esv
In this article, we will take a look at the 10 best shipping stocks that pay dividends. You can skip our detailed discussion on the merits of dividend investing and go to the 5 Best Shipping Stocks that Pay Dividends.
The COVID-19 pandemic has had a significant impact on a variety of businesses including the global shipping industry. The shipping industry has been directly impacted by the coronavirus crisis because of reduced shipments amid a slump in production, supply and demand. Moreover, according to the International Energy Agency (IEA), during the peak of the epidemic in April 2020, demand for oil and gas dropped to an unsettling 30 million BPD, lowering the need for tankers. However, the relaxation of coronavirus limitations and the subsequent increase in economic activity, particularly in the United States, has boosted transportation stocks, notably shipping companies.
The global shipping sector was interrupted in March when the massive container ship Ever Given, which was carrying 18,300 containers at the time, blocked the Suez Canal. The Suez Canal blockage affected not only the global shipping industry and the Egyptian economy, but also a wide range of businesses, from domestic transportation providers to retailers, supermarkets, and manufacturers. According to German insurer Allianz, the blockage could cost global trade $6 billion to $10 billion per week. Shipowners who loan vessels to liners like Costamare Inc. (NYSE: CMRE) and Danaos Corporation (NYSE: DAC) benefited greatly from the Ever Given incident.
Why Invest in Dividend-Paying Shipping Stocks?
Shipping stocks are surging as investors look forward to a worldwide economic recovery in the second half of this year and 2022. The worldwide maritime transportation industry is steadily improving. The bulk shipping market expanded at a CAGR of 1.3% between 2015 and 2020, according to McKinsey data, and growth rates are likely to stabilize around 0.8% each year until 2030. The data also mentioned that in the next ten years, shipbuilding is projected to add 3 to 4% to active capacity per year, while decommissioning will remove 1 to 2%. As a result, supply will grow at a CAGR of 1 to 3%.
In late April, Jefferies Shipping Index was up 44.6%. In contrast, the S&P 500 is up 11% year-to-date, while the Russell 2000 was up 15%. The current situation of the shipping business, according to Jefferies analysts, has helped maintain values low and appealing for entry possibilities. The New York-based investment banking group also mentioned that prices for tanker firms are inclined to remain low in the first half of 2021, but that rates would improve dramatically in the second half as global demand, crude oil output, and refinery utilization rise.
One of the best shipping stocks that pay dividends is Greek container ship owner and operator Danaos Corporation (NYSE: DAC). The company pays an annualized dividend of $2 per share to shareholders with a dividend yield of 3.17%. The stock's 52-week range is $3.33 - $67.40. Danaos Corporation (NYSE: DAC) has been a standout as evident from the stock’s significant surge of more than 1,481% over the past twelve months. The company has a market cap of $1.3 billion. The company's total contracted revenues in the first quarter were $1.2 billion.
Another shipping stock that pays a dividend is Monaco-based container shipping firm Costamare Inc. (NYSE: CMRE). The company pays an annualized dividend of $0.4 per share with a fair yield of 3.73%. Costamare Inc. (NYSE: CMRE) owns 77 containerships. The company has a market cap of $1.3 billion. Shares of CMRE surged 133% over the past twelve months. Investors looking to add value to their dividend portfolio should consider adding Costamare Inc. stock. Operating activity net cash flows grew by $23.9 million to $274.3 million in 2020, up from $250.4 million in 2019. The growth is primarily due to an improved working capital position and increased charter revenue.
International Seaways, Inc. (NYSE: INSW)
Although the tanker shipping sector had faced significant challenges led by COVID-19, shares of American crude tanker International Seaways, Inc. (NYSE: INSW) increased 13.4% in the last month. The company has a market cap of $563 million. The company pays an annualized dividend of $0.24 per share, with a 1.20% yield. At the end of the fourth quarter of 2020, International Seaways, Inc. (NYSE: INSW) had roughly $215 million in cash and $255 million in liquidity. On March 29, HC Wainwright & Co. initiated coverage of International Seaways, Inc. with a Buy rating and a price target of $30.
Just like the shipping industry, the hedge fund industry is also seeing the winds of change. The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th, 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
With this context in mind, here is our list of the 10 best shipping stocks that pay dividends.
Best Shipping Stocks that Pay Dividends
10. Nordic American Tankers Limited (NYSE: NAT)
Dividend Yield: 7.4% Number of Hedge Fund Holders: 10
Nordic American Tankers Limited (NYSE: NAT) is a Bermuda-based international tanker company that operates Suezmax crude oil tankers. It is ranked tenth on our list of 10 best shipping stocks that pay dividends. The shipping firm now operates a fleet of 25 Suezmax crude tankers, each capable of carrying 1 million barrels of crude oil. Nordic American Tankers Limited declared a quarterly dividend of $0.02 per share on May 25 payable to shareholders in June.
Nordic American Tankers Limited (NYSE: NAT) has a market cap of $537 million. As of May 25, the company's total assets are approximately $949 million. The stock has returned close to 18% to investors year to date. Nordic American Tankers is upgraded to In-Line by Evercore ISI Group in May 2021, with a $4 price target.
At the end of the first quarter of 2021, 10 hedge funds in the database of Insider Monkey held stakes worth $7.11 million in Nordic American Tankers Limited (NYSE: NAT), up from 5 in the preceding quarter worth $7.6 million.
9. Danaos Corporation (NYSE: DAC)
Dividend Yield: 3.17% Number of Hedge Fund Holders: 12
Danaos Corporation (NYSE: DAC) is a Greek containership operator that was founded in 1972. It is ranked ninth on our list of 10 best shipping stocks that pay dividends. Danaos Corporation operates a fleet of 65 containerships with a total capacity of 403,793 twenty-foot equivalent units, providing seaborne transportation services to liner firms in the United States, Europe, Asia, and Australia. The company recently resumed dividend payments to shareholders, declaring a quarterly dividend of $0.5 per share payable in June on May 5. DAC has a PE ratio of 3.22.
Danaos Corporation (NYSE: DAC) has a market cap of $1.3 billion. The company's total contracted revenues in the first quarter were $1.2 billion. Danaos stock has returned a whopping 1,481% to investors over the past twelve months. For the first quarter of 2021, the company posted an adjusted net income of $58.0 million, or $2.83 per share, an increase of 74.2% from $33.3 million, or $1.34 per share, for the same period in 2020.
At the end of the first quarter of 2021, 12 hedge funds in the database of Insider Monkey held stakes worth $122 million in Danaos Corporation (NYSE: DAC), up from 11 in the preceding quarter worth $71.2 million.
8. Costamare Inc. (NYSE: CMRE)
Dividend Yield: 3.73% Number of Hedge Fund Holders: 12
Costamare Inc. (NYSE: CMRE) is a Monaco-based container shipping company that was founded in 1974. It is placed eighth on our list of 10 best shipping stocks that pay dividends. As of February 2021, Costamare Inc. owned 77 containerships with a total capacity of about 555,810 twenty-foot equivalent units. The company pays an annualized dividend of $0.4 per share with a fair yield of 3.73%.
Costamare Inc. (NYSE: CMRE) has a market cap of $1.3 billion. Shares of CMRE surged 133% over the past twelve months. Adjusted net income payable to common stockholders for the full year 2020 was $123.7 million, or $1.02 adjusted earnings per share.
At the end of the first quarter of 2021, 12 hedge funds in the database of Insider Monkey held stakes worth $43 million in Costamare Inc. (NYSE: CMRE), up from 11 in the preceding quarter worth $46 million.
7. Star Bulk Carriers Corp. (NASDAQ: SBLK)
Dividend Yield: 6.15% Number of Hedge Fund Holders: 13
Star Bulk Carriers Corp. (NASDAQ: SBLK) is a Greek shipping company that was founded in 2006. It is ranked seventh on our list of 10 best shipping stocks that pay dividends. The shipping firm had a fleet of 128 vessels with a total capacity of around 14.1 million deadweight tons as of March 2021, which transport a variety of big bulks such as iron ores, coal, and grains. Star Bulk Carriers Corp. also transports minor bulks such as steel and fertilizer products. The company currently pays an annualized dividend of $1.20 per share with a high yield of 6.15%.
Star Bulk Carriers Corp. (NASDAQ: SBLK) has a market cap of $1.98 billion. The company earned $35.8 million in net income in the first quarter of 2021, or $0.36 per share. Net cash generated by operating activities increased by 147 percent to $79.2 million in the first quarter of 2021, compared to $32.1 million in the first quarter of 2020. Jefferies maintained a Buy rating on Star Bulk Carriers and increased the price target to $25 on May 20. Shares of SBLK jumped 283% over the past twelve months.
At the end of the first quarter of 2021, 13 hedge funds in the database of Insider Monkey held stakes worth $692 in Star Bulk Carriers Corp. (NASDAQ: SBLK), up from 10 in the preceding quarter worth $382 million.
6. International Seaways, Inc. (NYSE: INSW)
Dividend Yield: 1.20% Number of Hedge Fund Holders: 14
International Seaways, Inc. (NYSE: INSW) is a New York-based oil and petroleum products shipping company that was founded in 1999 as OSG International, Inc. It is ranked sixth on our list of 10 best shipping stocks that pay dividends. The shipping firm operates a fleet of 36 vessels that transport oil and crude products internationally for independent and state-owned oil firms, refinery operators, and the government. The company pays an annualized dividend of $0.24 per share, yielding at 1.20%.
The company has a market cap of $563 million. The company has about $215 million in cash and $255 million in liquidity at the end of the fourth quarter of 2020. International Seaways, Inc. (NYSE: INSW) announced in March that it would merge with Connecticut-based tanker firm Diamond S Shipping Inc. (NYSE: DSSI) in the third quarter of 2021, creating the second-largest US-listed tanker company by vessel count of about 100 and shipping revenues of over $1 billion. INSW will continue to trade on the NYSE under the symbol "INSW" following the merger. On March 29, HC Wainwright & Co. initiated coverage of International Seaways, Inc. with a Buy rating and a price target of $30. International Seaways, Inc. stock has returned 23% to investors year to date.
At the end of the first quarter of 2021, 14 hedge funds in the database of Insider Monkey held stakes worth $99.5 in International Seaways, Inc. (NYSE: INSW), up from 8 in the preceding quarter worth $80 million.
Like Nordic American Tankers Limited (NYSE: NAT),Costamare Inc. (NYSE: CMRE), Danaos Corporation (NYSE: DAC) and Star Bulk Carriers Corp. (NASDAQ: SBLK), INSW is one of the best shipping stocks that pay dividends.
Click to continue reading and see the 5 Best Shipping Stocks that Pay Dividends.
Disclosure: None. 10 Best Shipping Stocks that Pay Dividends is originally published on Insider Monkey.
4 Shipping Stocks That Could Sail Higher
While normally floating along behind the scenes, marine shipping stocks have percolated up as a potentially stunning investment opportunity.
Disruption in global supply chains, shortages in containers, surges in worldwide trade and a global emphasis on infrastructure spending are all disrupting the market in ways that are playing into the hands of companies involved in marine shipping.
The shipping market at large is broken down across tankers, containers and dry bulk shippers of commodities such as grains, metals and coal.
With lackluster energy markets, the action is in bulk dry shipping and containers. The latter is linked to the demand for consumer goods which have surged, while dry bulk is linked to the global trade of commodities, which are cyclical to begin with, but bolstered by existing and planned infrastructure spending.
As far as dry bulk shipping stocks go, there are plenty of these, but most are small with market capitalizations below $1 billion – and many less than $500 million. The container shipping industry, meanwhile, has few publicly traded options to choose from.
So, in addition to container shipping, investors might consider the opportunity presented by the containers themselves. While trends in dry bulk shipping are driven by supply and demand, the opportunity in containers is driven largely by chaos at shipping ports caused by closures, delays and shortages. Many experts feel rich container pricing will persist as ports continue to manage lengthy backlogs due in part to the pandemic, but also an increase in vessel capacity.
In shipping stocks, there's a lot of chaff, but the four opportunities below offer up some wheat for investors.
Data is as of Aug. 31. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price.
1 of 4
Textainer Group Holdings
- Industry: Rental and leasing services
- Market value: $1.6 billion
- Dividend yield: N/A
Other than speeding past them on interstates, nobody thinks much about containers. But they carry most of the world's consumer goods to and from ports around the world, and port delays, supply chain glitches and increases in shipping on the heels of global gross domestic product (GDP) spikes have made for interesting times in containers.
Textainer Group Holdings (TGH, $33.22) owns, manages, leases and sells its fleet of 4.1 million containers, and is well-positioned to benefit from current container market dynamics.
Textainer's top-line growth is solid, with second-quarter lease rental income of $187 million – up handsomely from the year-ago tally of $145 million, and notably higher than the first-quarter's $169 million.
But revenue growth would be expected in this environment, and a more skeptical investor might wonder why it's not higher. The action, it turns out, shows up on the bottom line. For instance, adjusted net income per share for the second quarter was up 428% from a year ago. Sequentially, earnings per share (EPS) were up almost 28%.
A couple of key metrics make this performance possible. First, better pricing for containers has driven down the impact of expenses. For instance, direct container costs as a percent of rental income – which spiked at 18% four years ago – is now below 3%. Further, the fleet utilization rate, which was near 95% at this time last year, is now at 99.8%. Every 1% increase in utilization represents about 40,000 containers which are now being leased at premium rates.
Textainer has made investments to capitalize on growing demand for containers, with orders totaling $1.1 billion. Some of these have been delivered, with the rest coming online in the third quarter. The company also claims "virtually all" containers are either on, or committed to, long-term leases.
A look at Textainer's financials reveals that it's not a container company per se, but a finance company. This is, on balance, good news for investors of shipping stocks. In addition to the underlying trends driving container demand, the optimization in matching the duration of long-term leases with debt financing, and the ability to materially lower costs with astute financial management offers another lever for improving earnings.
2 of 4
Star Bulk Carriers
- Industry: Marine shipping
- Market value: $2.4 billion
- Dividend yield: 4.2%
The primary driver of growth for Star Bulk Carriers (SBLK, $23.07) is rising shipping costs. While these are bad for companies that make goods, they are manna for companies that ship them. Given the surge in the Baltic Exchange Dry Index, which measures the cost to ship commodities across various routes, Star Bulk can potentially earn $41,000 a day, versus about $15,000 a year ago.
Among the many dry bulk shipping stocks, Star Bulk, with 128 vessels, is one of the largest, best capitalized and most profitable with a high dividend payout to boot.
Shipping rates have played well for Star Bulk. For the second quarter, revenues were about $311 million, up from $146 million a year ago. Moreover, the company swung from a GAAP (generally accepted accounting principles) loss of 46 cents per share in Q2 2020 to a gain of $1.22 per share one year later.
Clearly, the company is feeling its oats with a dividend increase to 70 cents per share, a significant jump from the first-quarter dividend payment of 30 cents per share. However, investors should note that Star Bulk is an inconsistent dividend payer and ceased paying a dividend for most of 2020.
But in another sign of confidence, management announced the authorization of a $50 million share buyback program with the second-quarter report. Notably, this authorization occured after the shares advanced from about $9 to the current level of about $23 for the year to date.
The question now becomes: If the company has signaled its willingness to buy shares at this level, should investors jump on board, too?
3 of 4
- Industry: Marine shipping
- Market value: $1.7 billion
- Dividend yield: 2.4%
While Star Bulk provides entrée to dry bulk shipping stocks, Danaos (DAC, $83.52) offers access to container shipping where growth in rates is equally frothy.
To see the froth, investors need to look no further than the Freightos Baltic Global Container Index, or FBX, which measures the average price to ship 40-foot containers along various routes. Over the past year, the rate has risen from $1,950 to the current rate of about $10,000.
DAC's bottom-line for six months ended June 30, seems to reflect some of the froth, coming in at $6.17 per share on an adjusted basis – double the $3.06 per share from the year-ago period. It should be noted, though, that some of the per share gain came from a reduction of shares outstanding from 24.8 million to 20.5 million.
The "adjusted" earnings at Danaos are actually lower – much lower – than the GAAP earnings, which totaled nearly $670 million for the six months ended June 30. Many companies use adjustments in their reporting to make the financial performance look better. Accordingly, Danaos gets points for not trumpeting the GAAP earnings and what looks like a nearly 10x increase in earnings by taking out a $444 million gain on an investment and another $112 million adjustment associated with a debt refinancing, which are clearly non-recurring.
Adjustments aside, Danaos is throwing off a lot of cash now, with free cash flow (FCF) – the cash remaining after a company has paid its expenses, interest on debt, taxes and long-term investments to grow its business – of $109 million for the six months ended June 30. This is an increase of three times FCF from the first six months of last year.
Despite a tremendous run-up in shares from $22 to their current perch near $85, the company still trades at a discount to its net asset value of $144 per share. To put this into perspective, a company such as Apple (AAPL) trades at a multiple of about 39 times its book value (often synonymous with net asset value, but there can be differences), while Danaos is trading at 0.6x its net asset value. Premiums to book value are often related to growth and the composition of assets. Apple, clearly a grower, owns a lot of intellectual property assets, which are often valued more richly than hard assets such as a ship.
But right now, ships are valuable assets and shipping is a growth business. Net, net, the steep discount indicates there might be yet more room to run in Danaos shares.
4 of 4
Breakwave Dry Bulk Shipping ETF
- Assets under management: $87.2 million
- Expenses: 3.3%
John Kartsonas, founder and managing partner at Breakwave Advisors – which is the advisor for the Breakwave Dry Bulk Shipping ETF (BDRY, $30.00) – aptly notes that that while demand for dry bulk shipping can change rapidly, the supply of ships is less flexible, with lead times of up to two years.
With dry bulk shipping tonnage growing and fleets remaining relatively stable, the Baltic Exchange Dry Index has grown from $1,500 at this time last year to the current rate of about $41,000. In other words, the cost to ship dry bulk goods is now $41,000 per day.
The Breakwave Dry Bulk Shipping Index aims to capitalize on these trends, with a portfolio of near-dated freight futures contracts on dry bulk indices. This fund has been on fire, with a year-to-date change in the net asset value at an eye popping 229% through the end of July.
While this performance is compelling and the underlying market dynamics look like they will continue, investors should be cautious and somewhat agile with respect to BDRY. Despite a stellar return so far this year, the total return since its March 2018 inception is about 4.3%.
The fund's expense ratio, at 3.3%, is bulk-sized, too. This is driven in part by the idiosyncrasies of the dry bulk market, which is still a voice-based system with brokers, phone in each ear, lining up trades. As shipping is perhaps one of the world's oldest industries, this holdover seems appropriate, albeit costly.
Learn more about BDRY at the Breakwave Advisors provider site.
Stocks for 2021 best shipping
Why Shipping Stocks Are On Fire
The global shipping industry has officially hit a crisis point -- loaded ships are queued outside ports around the world, and companies are clamoring for workers who may not get off a ship for a year or more. At the same time, the global economy is picking up steam as demand for goods increases. Supply and demand are out of whack, and day rates for ships are soaring as a result, which should be a windfall for ship owners and logistics companies.
On the dry bulk side of the shipping industry, Star Bulk Carriers(NASDAQ:SBLK), Danaos(NYSE:DAC), Navios Maritime Partners(NYSE:NMM), Diana Shipping(NYSE:DSX), and ZIM Integrated Shipping Services(NYSE:ZIM) could see profitability surge as shipping rates rise. What we don't know is how long the good times will last for these transport stocks. Here's what we know today about the dry bulk industry.
Image source: Getty Images.
Dry bulk shipping is in high demand
Dry bulk shipping -- or cargo vessels that are built for dry goods and not liquids -- rates have exploded this year to levels we haven't seen since before the Great Recession. According to Trading Economics, the Baltic Dry Index -- a shipping market bellwether -- is now at 5,167, up 30% over the past month and 157% over the past year.
For some perspective on that period of time, the index is higher than at any time since September 2008, a peak that ended when the Great Recession hit and global demand for goods around the world dropped. But the recession wasn't expected, and shipping companies had ordered new ships based on high rates, so ship supply kept hitting the market well after the recession hit. That's not happening today, according to Klaveness Research -- at least not yet. There's only expected to be about a 2% increase in the global dry bulk fleet over each of the next two years. That may mean that the high rates we see today will stay or even move higher if the economy picks up.
Newbuild orders may pick up now that day rates are on the rise, but it'll take many years for new ships to reach circulation. In the meantime, ship owners should see a windfall in revenue.
Financial results are starting to follow
Each company has a slightly different strategy, which often includes some long-term charters for ships, so there can be a lag between the Baltic Dry Index rising and profits going up. But we are starting to see the financial impact of higher rates on the industry.
DAC Revenue (TTM) data by YCharts
ZIM is seeing the impact earliest because it has an asset-light strategy, leasing ships and then renting out space at the prevailing market rate. Its profitability has surged over the past year.
ZIM Revenue (TTM) data by YCharts
The windfall should continue for a while. I mentioned above that new supply will be slow to come to the market, and right now demand is through the roof. But the market will likely turn eventually.
How the market turns
Supply and demand always seem to come back into balance in the shipping industry. And it's what management does with its windfall cash that will determine what stocks do.
If companies spend cash quickly to contract newbuilt ships that won't be delivered for years or spend it on acquisitions, the money could be lost when the market turns lower. For the foreseeable future, cash generation should be strong in the dry bulk industry, and that should help stocks with exposure to the market. Just beware that the market can turn on a dime when supply exceeds demand, which history says will come eventually.
7 Best Transportation Stocks to Buy Now
Transportation stocks have emerged as an intriguing investment opportunity amid ongoing global supply chain disruptions and shortages.
The pandemic has crippled the international supply chain and companies of all sizes are scrambling to find solutions.
The supply chain crisis is expected to affect this year's holiday shopping season, with shortages of everything from artificial Christmas trees to sporting goods and even turkeys for Thanksgiving.
As a result of these shortages, inflation has reared its ugly head.
"We see supply chain problems as the main drivers for higher prices for new and used cars, auto parts, furniture and other goods," say Tony Roth, chief investment officer, and Luke Tilley, chief economist at Wilmington Trust. However, while there are near-term inflation pressures, they believe the "eventual easing of supply disruptions and improving virus conditions should help soften price pressures as we move into 2022."
Transportation firms are going to be a part of the solution to reduce supply chain disruptions and eventually help bring prices back down to earth.
With that in mind, here are seven transportation stocks that should benefit from an unwinding of the supply chain backlogs. Each is a member of the iShares U.S. Transportation ETF (IYT) – a fund that tracks the performance of companies operating within the transportation sector of the U.S. stock market.
Data as of Oct. 18. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price.
1 of 7
United Parcel Service
- Industry: Integrated freight and logistics
- Market value: $166.4 billion
- Dividend yield: 2.1%
When investors think of United Parcel Service (UPS, $193.39), they generally picture the big brown shipping vans seen around towns across the U.S. and elsewhere. However, it's not just a courier these days. It has become a logistics company and so much more.
On Sept. 10, UPS announced that it would acquire Roadie, a technology platform that provides local same-day delivery across the U.S.
"UPS customers, including large enterprises, are increasingly looking for local same-day delivery solutions for goods of all types, not traditional packages," UPS' press release stated.
The acquisition provides UPS with a scalable, nationwide same-day local delivery service without taking resources away from its traditional delivery network by using technology to connect merchants and consumers with contract drivers across the country.
In recent years, UPS has faced competitive threats from not only Amazon.com (AMZN), which has taken much of its delivery work in-house, but also e-commerce logistics startups.
To counter these competitive threats, it has implemented a "better, not bigger" strategy that focuses on profitable customers rather than the total number.
The Roadie acquisition should help its strategy and will "open doors for new growth opportunities," according to UPS.
UPS stock has underperformed the broader market in 2021. But with a price-to-forward earnings ratio of 16, this is one of the cheaper transportation stocks out there right now.
2 of 7
- Industry: Railroads
- Market value: $144.8 billion
- Dividend yield: 1.9%
Union Pacific (UNP, $225.93) and the rest of the railroad companies remain a vital segment of the U.S. transportation network. According to the Association of American Railroads, Union Pacific and the six other Class I railroads – those with at least $505 million in 2019 revenue – account for 68% of all freight rail mileage in the country and 94% of the revenue.
As for Union Pacific, its railroad network covers 23 states and two-thirds of the Western U.S., serving more than 10,000 customers over its 32,200-route miles.
In 2021, the company expects full-year volume growth of 7% over last year, free cash flow – the cash remaining after a company has paid its expenses, interest on debt, taxes and long-term investments to grow its business – of roughly $7 billion and a dividend payout ratio of just 45% of earnings.
In early October, Barclays upgraded Union Pacific from Equalweight to Overweight (the equivalents Hold and Buy, respectively) and lifted its target price by $20 to $260.
"The more recent underperformance has likely been driven by softer rail volume outcomes and the risk of potentially higher U.S. corporate tax rates," analyst Brandon Oglenski said. However, he sees these headwinds for transportation stocks abating and fundamentals improving into next year amid stronger demand for freight shipping.
Oglenski isn't alone in his bullish outlook for UNP. Of the 30 analysts following the stock that are tracked by S&P Global Market Intelligence, 16 say it's a Strong Buy, seven call it a Buy, six believe it's a Hold and only one deems it a Sell.
3 of 7
- Industry: Software - Application
- Market value: $86.7 billion
- Dividend yield: N/A
Ever since Uber Technologies (UBER, $47.07) went public in May 2019, investors have been waiting for it to make money.
While it's not there yet, the ride-hailing and food delivery company filed a disclosure with the Securities and Exchange Commission (SEC) on Sept. 21 that said it expects to break even on an adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) basis in the third quarter.
That's up from the $100 million loss it expected in previous guidance. It expects to make anywhere from breakeven to a $100 million adjusted EBITDA profit in the fourth quarter.
"With positive adjusted EBITDA in July and August, we believe Uber is now tracking towards adjusted EBITDA breakeven in Q3, well ahead of our prior guidance," said Nelson Chai, chief financial officer of Uber, in the company's SEC filing. "We expect to deliver sequential adjusted EBITDA improvement in Q4, even as we continue to invest in our growth initiatives."
The Wall Street Journal reported that this would be the first time Uber's core operations post a profit since it was founded in 2009.
One key component of this is a balancing of supply-and-demand issues and easing of surge prices, which are the higher ride costs and longer wait times the company has faced during the pandemic due to a smaller number of drivers. CEO Dara Khosrowshahi recently said that it will continue to see surge prices and wait times fall as more drivers return to the platform.
"What we did was, early on we identified our need to bring on more drivers onto the platform. So, in the second quarter, we really leaned into supply, especially in the U.S., to reinvigorate our driver base and grow our driver base in the U.S.," CEO Dara Khosrowshahi told CNBC. He added that the company is now seeing the benefits of that investment.
While Uber's stock has not performed well in 2021, the latest news should positively influence its share price in the remaining months of this year and into 2022. Already, shares are up nearly 24% from their mid-September lows around $38.
4 of 7
Delta Air Lines
- Industry: Airlines
- Market value: $26.4 billion
- Dividend yield: N/A
Delta Air Lines (DAL, $41.01) recently was named the best North American airline by Skytrax.
The air transportation research firm surveyed more than 13 million customers worldwide about the entire airline experience. The survey lasted almost two years, from September 2019 to July 2021. The top finish put it ahead of Air Canada for the first time in four years.
In September, DAL reported its first quarterly profit since the pandemic without any federal aid. The airline stock also brought in $9.2 billion in revenues in Q3, saying customers were showing a willingness to pay for "premium" seats.
While CEO Ed Bastian warned of the company's ability to stay profitable in the fourth quarter due to rising fuel costs, he expressed confidence "in our path to sustained profitability as we continue to provide best-in-class service to our customers, strengthen preference for our brand, while creating a simpler, more efficient airline."
And Delta sees continued recovery in revenues through the end of the year. "With robust holiday demand and an expected improvement in corporate and international demand, we expect total December quarter revenue to recover to the low 70s percentage relative to 2019," Glen Hauenstein, president of Delta, said.
Additionally, DAL had $151 of operating cash flow and $15.8 billion in liquidity at the end of Q3.
The airline, which is not mandating employees be vaccinated against Covid-19, also reported a roughly 90% vaccination rate in its Q3 results. That's lower than airlines requiring employees to be vaccinated. However, it implemented a $200 monthly healthcare surcharge for unvaccinated employees. Within the first two weeks of announcing the surcharge, 20% of its unvaccinated employees got their shots.
Delta's improving fundamentals and bold moves continue to make the airline one of the better transportation stocks to own over the long haul.
5 of 7
- Industry: Integrated freight and logistics
- Market value: $9.0 billion
- Dividend yield: N/A
It has been a little more than two months since XPO Logistics (XPO, $81.35), a freight transportation and brokerage provider, completed its spinoff of GXO Logistics (GXO), the company's former contract logistics provider. As a result, XPO shareholders received one share of GXO for every share held in the parent.
XPO first announced the spinoff in December 2020. It made the move so both companies could better focus on their specific strengths while extracting value as pure-play businesses that are more easily understood.
However, XPO Logistics CEO Brad Jacobs first discussed the idea of a spinoff in January 2020.
"XPO is the 7th best-performing stock of the last decade on the Fortune 500, based on Bloomberg market data. The share price has increased more than tenfold since our investment in 2011," Jacobs stated in a press release exploring strategic alternatives. "Still, we continue to trade at well below the sum of our parts and at a significant discount to our pure-play peers."
Jacobs first invested $150 million in Express-1 Expedited Solutions in 2011. Through 17 acquisitions, including the $3-billion purchase of Con-way Inc. in 2015, he grew XPO to the business it is today.
The problem was investors didn't appreciate what Jacobs had accomplished through all his M&A moves.
"[Jacobs] acquired a lot of companies and created a lot of synergies," trucking consultant Satish Jindel told TransportDive.com just ahead of the spinoff. "The market did not fully appreciate all of the units combined." But he believes the separation of GXO will pay off in the long run.
As two pure-play businesses, the market ought to value both transportation stocks more appropriately in the future. That's excellent news if you're a shareholder.
6 of 7
- Industry: Marine shipping
- Market value: $3.5 billion
- Dividend yield: 1.5%
Matson (MATX, $82.91) operates two businesses: Ocean Transportation and Logistics.
The Hawaii-based company's Ocean Transportation segment dates back to 1882. It provides freight transportation services to Hawaii, Alaska, Guam and other small islands in Micronesia. In addition, it operates expedited services from China to California and shipping services to Japan and other islands in the South Pacific.
Its Logistics business got its start in 1987. The asset-light business provides logistics services to customers across North America. In the second quarter ended June 30, Ocean Transportation accounted for 78% of its overall revenue and 94% of its operating income.
The company's second-quarter results – revenue increased 67% year-over-year to $875 million, while net income jumped 395% to $162.5 million – were driven by strong results from its CLX and CLX+ services to and from China.
Matson has been one of the best transportation stocks to own in 2021. Year-to-date, its total return is 45.5%, more than double the S&P 500. Its three-year annualized total return of 33% is also impressive, and runs 13 percentage points higher than the entire U.S. market.
When investing in Matson, one thing to consider is that the company – along with many other shipping stocks – has benefited from higher rates during the pandemic.
Pre-COVID, it cost approximately $1,500 to ship a 40-foot container from China to California. As recently as September, the cost was $15,000 for the same container. As we enter the final quarter of the calendar year, shipping rates are expected to fall considerably as this is the traditional off-season for shipping freight.
However, in the trailing 12 months ended June 30, Matson had free cash flow of $280 million for a free cash flow yield of 8%, suggesting it still has some room to run.
7 of 7
Atlas Air Worldwide
- Industry: Airports and air services
- Market value: $2.3 billion
- Dividend yield: N/A
Atlas Air Worldwide (AAWW, $79.11) outsources aircraft and aviation operating services for other companies, which is why it is on this list of top transportation stocks.
For example, it recently signed a new long-term agreement with FedEx (FDX) that provides two 747-400 cargo aircraft full-time to the delivery company with a crew, maintenance and insurance, commonly referred to as ACMI in the industry.
"We are pleased to grow our long-term relationship with FedEx," Atlas Air Worldwide CEO John W. Dietrich said in a press release announcing the deal. "This agreement reflects the continued strong demand for airfreight capacity, particularly in the express and e-commerce markets."
The company also has a multi-year agreement with FedEx that provides at least five aircraft during its peak season in the fourth quarter.
In addition to its ACMI business, AAWW also provides CMI (crew, maintenance and insurance) services, cargo charters and cargo leasing solutions through its fleet of 747, 777, 767 and 737 aircraft.
The company has two reportable operating segments: Airline Operations and Dry Leasing. Its revenues increased 20% year-over-year to $990.4 million in the second quarter, with an operating profit of $160.1 million, 33% higher than the year earlier. In addition, the company is benefiting from the reintroduction of four 747s and one 777 rreighter back into service in 2020.
Due to COVID-19, AAWW isn't providing full-year guidance. However, it does expect healthy growth both on the top- and bottom-lines in the third quarter.
Of the seven analysts covering AAWW stock tracked by S&P Global Market Intelligence, four rate it at Strong Buy and one says Buy. The remaining two have it at Hold.
You will also be interested:
- Horry county schools district maps
- 25 hp mercury fuel pump
- Easy diy acrylic painting ideas
- Used dillon reloader for sale
- Affordable studio apartments charlotte nc
- Sky disc 17 pack
Need to shout "I!" In response), and only then there will be a lights out. And now I have free time. I have already prepared for tomorrow. What else to write to you, I do not know.