Golden Ocean Stock: Outlook for High-Yield Shipping Play Is Bullish
January 29, 2024
Why GOGL Stock Has Rebounded
Industry dynamics have put dry bulk marine shipping companies like Golden Ocean Group Ltd (NASDAQ:GOGL) back in the spotlight.
Shipping stocks have been on the move due to rising conflicts in the Middle East, with Houthi strikes on cargo ships in the Red Sea and retaliatory strikes from the U.S. and U.K.
There are fears that the Israel-Hamas war could spread across the Middle East and further disrupt trade in one of the world’s busiest marine shipping routes.
There were rumors that Yemen’s Houthi rebels had reached a deal with shipping companies to ensure they would not be attacked, but two European shipping companies have denied that any agreement has taken place. (Source: “Big Gains on the Horizon for Shipping Stocks in Red Sea Conflict?,” MarketBeat, January 10, 2024.)
Shipping companies have been taking longer routes to avoid the Suez Canal, which has been boosting the price of shipping. Even if the situation is resolved in the near term, it could be months before shipping traffic in the Suez Canal returns to normal.
This will keep shipping rates elevated for quite some time. Analysts estimate that shipping rates for routes between Asia and the U.S. Eastern Seaboard recently jumped by 40% over one month.
What about the Panama Canal, which connects the West coast of the U.S. to Atlantic routes to Europe?
There are issues there, too. Drought has restricted the number of ships allowed through the Panama Canal: 24 per day instead of the usual capacity of about 38 per day. This has resulted in a months-long bottleneck. (Source: “The Panama Canal Is Enmeshed in a Crisis That’s Disrupting Global Trade. But it Will Take Years and Billions of Dollars to Fix,” Fortune, January 2, 2024.)
Keep in mind, all of this has been happening at a time when it’s expected that the demand for dry bulk shipping will increase significantly. A shortage of dry bulk ships and marine freight rates being up by anywhere from 20% to 50% should be a winning scenario for Golden Ocean Group Ltd.
Golden Ocean is the world’s largest publicly listed dry bulk shipping company. It currently owns and operates a fleet of 95 dry bulk carrier vessels, focusing on the largest segments of the market, Capesize and Panamax ships. (Source: “Pareto Securities Energy Conference: September 2023,” Golden Ocean Group Ltd, last accessed January 19, 2024.)
Capesize vessels, the largest class of bulk ships, are used to transport coal and iron ore. Because of their size (twice as big as an NFL football field), they cannot pass through the Panama Canal. Instead, they need to travel around the Cape of Good Hope, hence the name “Capesize.”
Panamax vessels are the largest class of bulk ships that can navigate the Panama Canal.
Third-Quarter Net Income of $28.7 Million
For the third quarter of 2023, Golden Ocean reported net income of $28.7 million, or $0.14 per share, compared to second-quarter 2023 net income of $34.9 million, or $0.17 per share. (Source: “GOGL – Third Quarter 2023 Results,” Golden Ocean Group Ltd, November 21, 2023.)
Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in the third quarter were $78.9 million, compared to $80.4 million in the second quarter.
The company reported third-quarter time charter equivalent (TCE) rates for its Capesize vessels of $18,173 per day and TCE rates for its Panamax/Supramax vessels of $15,389 per day. Its third-quarter total TCE for the entire fleet was $17,076 per day.
For the fourth quarter of 2023, Golden Ocean Group Ltd’s management team estimates that it will report TCE rates of $23,045 per day for 79% of the Capesize available days and $17,275 per day for 83% of the Panamax available days.
For the first quarter of 2024, it estimates that it will report TCE rates of $21,700 per day for 12% of the Capesize available days and $15,600 per day for 23% of the Panamax available days. Due to the conflicts in the Middle East and the drought affecting the Panama Canal, chances are good that the company will update these first-quarter estimates when it announces its fourth-quarter results.
Golden Ocean Stock Pays Cash Dividends of $0.10 Per Share
Reliable cash flow and a growing shipping fleet mean Golden Ocean Group Ltd can pay reliable, high-yield dividends. That’s when times are good, of course—and they are right now.
The company paid quarterly dividends of $0.10 per share in December 2023, for a yield of 5.08% (as of this writing).
In the table below, you can see that GOGL stock’s quarterly dividends have fluctuated (sometimes wildly), based on Golden Ocean Group Ltd’s TCE rates and earnings. In 2020, during the COVID-19 pandemic, the company suspended its dividends, reinstating them in the first quarter of 2021.
| Quarter | Dividend Per Share |
| Q3 2023 | $0.10 |
| Q2 2023 | $0.10 |
| Q1 2023 | $0.10 |
| Q4 2022 | $0.20 |
| Q3 2022 | $0.35 |
| Q2 2022 | $0.60 |
| Q1 2022 | $0.50 |
| Q4 2021 | $0.90 |
| Q3 2021 | $0.85 |
| Q2 2021 | $0.50 |
| Q1 2021 | $0.25 |
| Q4 2019 | $0.05 |
(Source: “Dividend,” Golden Ocean Group Ltd, last accessed January 19, 2024.)
In addition to its dividends, Golden Ocean returns value to investors through its share repurchase plan.
During the third quarter of 2023, the company bought 125,000 of its own shares at an aggregate purchase price of $900,000, or $7.20 per share. It also extended its share buyback program by one year.
As for Golden Ocean Group Ltd’s share price, industry dynamics have been helping juice GOGL stock. As of this writing, it’s up by 36% over the last six months and approximately 19% year-over-year.
Analysts have provided a one-year average share-price forecast of $11.00 per share, which implies upside of 8.4%. That forecast hasn’t been updated since October 2023, so there’s a chance that the analysts have become more bullish on Golden Ocean stock since then—at least for the near term.
Chart courtesy of StockCharts.com
The Lowdown on Golden Ocean Group Ltd
The world’s leading owner of large dry bulk vessels, Golden Ocean is a great marine shipping company. Over the last several years, it has taken actions to grow and optimize its shipping fleet. This has enhanced the company’s competitiveness and allowed it to deliver solid financial results.
Golden Ocean Group Ltd’s TCE rates have been significantly higher than its breakeven levels, which has provided it with reliable cash flow. That cash flow is expected to increase as the demand for bulk shipping continues to outstrip supply. The effects of the growing tensions in the Red Sea on shipping demand and prices provide a compelling case in favor of Golden Ocean.
All that should help juice GOGL stock’s share price and high-yield dividends.
