Investors Can Trust ZIM Integrated Shipping Services Ltd’s 15.7% Yield
January 20, 2022
Why ZIM Integrated Shipping Stock Is Bullish
During the heat of the COVID-19 pandemic, marine shipping stocks took a beating. The world was in a recession, many stores were shuttered, many bank accounts were depleted, and the demand for products was at a standstill.
The economy and stock market recovered quickly, though. In fact, it took less than five months for stocks to go from their March 2020 lows to new record highs. This made the 2020 bear market the shortest in history—and the recovery the fastest on record.
Some of the biggest winners since then have been marine shipping companies like ZIM Integrated Shipping Services Ltd (NYSE:ZIM). With the economic recovery and supply chain crunch, which was supposed to be temporary, freight ships and containers are at a premium.
Manufacturers have been struggling to find key components, and companies have been locked in bidding wars to get space on shipping vessels, which has pushed freight rates up to record levels.
ZIM is a global container shipping company that offers multi-modal deliveries, cargo handling, tariff management, schedule information, and other related services. The company operates about 100 vessels (most of them chartered) in five trade zones: the Transpacific, Cross Atlantic, Cross Suez, Intra-Asia, and Latin America. (Source: “Overview,” ZIM Integrated Shipping Services Ltd, last accessed January 19, 2022.)
In response to the increase of e-commerce, the company launched premium high-speed shipping services. In order to keep up with overall shipping demand, ZIM purchased eight second-hand freight vessels in the third quarter of 2021 and announced a new long-term agreement to charter other vessels. (Source: “ZIM Reports Record Financial Results for the Third Quarter of 2021,” ZIM Integrated Shipping Services Ltd, November 17, 2021.)
ZIM stock has been trouncing the broader market. As of this writing, ZIM Integrated Shipping stock is up by:
- 24% over the last month
- 45% over the last three months
- 85% over the last six months
Moreover, ZIM Integrated Shipping Services Ltd recently implemented a new quarterly dividend policy.
Chart courtesy of StockCharts.com
ZIM Stock’s Ultra-High Dividend Is Safe on Record Financials
In the past, ZIM Integrated Shipping Services Ltd provided annual dividends of 30% to 50% of its annual net income. The company’s new policy is to provide quarterly dividends equal to approximately 20% of its quarterly net income.
ZIM Integrated Shipping stock’s fourth-quarter 2021 dividend provided an additional amount that brought the company’s full-year dividends to the range of 30% to 50% of its annual net income.
In September 2021, ZIM Integrated Shipping Services Ltd handed out a special dividend of $2.00 per share. In December, the company transitioned to a quarterly dividend, paying out $2.50 per share, for a yield of 15.7%.
You might question whether the dividend is safe. The short answer is yes.
In 2019, the company had operating cash flow of $370.6 million. That ballooned to $880.8 million in 2020. Then, in the first nine months of 2021, the company’s operating cash flow was a whopping $4.0 billion. That exceeded the total operating cash flow of the previous three full years. (Source: ZIM Integrated Shipping Services Ltd, November 17, 2021, op. cit.)
In the third quarter of 2021, ZIM’s revenue jumped by 210% year-over-year to $3.1 billion. The average freight rate per 20-foot container went up by 174% year-over-year to $3,226.
The first dividend of 2021 ($2.00 per share) only ate up $237.0 million of the company’s cash. The second dividend of the year ($2.50 per share) represented just 20% of the company’s quarterly net income of $12.16 per share, costing the company around $291.0 million.
The outlook for this ultra-high-dividend stock looks encouraging. Management once again raised their full-year 2021 guidance. ZIM Integrated Shipping Services Ltd now expects to report full-year 2021 adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) between $6.2 and $6.4 billion.
Commenting on the third-quarter results, Eli Glickman, president and CEO, stated, “During a time when we have posted record quarterly results, we are pleased to further allocate capital to enhance our commercial prospects and unlock shareholder value. Based on our expectation to distribute 30-50% of 2021 net income, we are poised to return significant capital to shareholders in 2022.” (Source: Ibid.)
With the company’s soaring net income and cash flow, I wouldn’t be surprised to see ZIM stock’s dividend yield exceed 20% in the coming quarters.
The Lowdown on ZIM Integrated Shipping Services Ltd
Marine shipping is in high demand, and that trend is expected to continue.
This has led ZIM Integrated Shipping Services Ltd to report record first, second, and third-quarter 2021 results and raise its full-year 2021 guidance. That has resulted in ZIM stock trumping the broader market. Furthermore, the company’s record cash flow generation has allowed ZIM Integrated Shipping stock to provide investors with safe, growing ultra-high dividends.
