20.2%-Yielding Diana Shipping Stock Has 34% Upside
January 12, 2024
Diana Shipping Inc Announced Long-Term Time Charter Contracts
Investors often sidestep marine shipping stocks because they don’t like the volatility that’s tied to the economic cycle.
Diana Shipping Inc (NYSE:DSX), however, is more stable than many shipping companies because it signs multiyear contracts that need to be paid regardless of the economic conditions.
On top of that, the outlook for the global dry bulk shipping industry is actually quite solid at the moment. Cargo demand was expected to increase by 2.5%–3.5% in 2023, and it’s expected to advance 0.5%–1.5% in 2024 and 1.0%–2.0% in 2025. (Source: “Dry Bulk Shipping Market Overview & Outlook Q4 2023,” BIMCO, November 28, 2023.)
Diana Shipping provides marine shipping services worldwide. The company pursues “an appropriate balance of short-term and long-term time charters.” (Source: “About Us,” Diana Shipping Inc, last accessed January 5, 2024.)
As of December 22, 2023, Diana Shipping’s fleet consisted of 41 dry bulk vessels: 10 Ultramax, nine Capesize, seven Panamax, six Kamsarmax, five Post-Panamax, and four Newcastlemax ships. The fleet’s combined carrying capacity was about 4.5 million deadweight tons (dwt), and the company’s time charter contracts had a weighted average of 10.5 years.
The company’s ships carry a range of dry bulk products, including iron ore, coal, and grain. (Source: “The Fleet,” Diana Shipping Inc, last accessed January 5, 2024.)
Diana Shipping’s fleet is always in flux in order to meet demand.
In November 2023, the company announced that it had entered a charter contract for one of its Ultramax vessels for a daily gross charter rate of $13,500, minus a five-percent commission paid to third parties. (Source: “Diana Shipping Inc. Announces Time Charter Contract for m/v DSI Andromeda with Bunge,” Diana Shipping Inc, November 20, 2023.)
The Ultramax charter began on November 24 and is expected to last until at least February 20, 2025, up to a maximum end date of April 20, 2025. The deployment of the Ultramax ship is expected to generate about $6.03 million of gross revenues for the minimum scheduled period of the time charter.
Later in November, Diana Shipping announced that it had entered a time charter contract for one of its Capesize vessels. (Source: “Diana Shipping Inc. Announces Time Charter Contract for m/v New Orleans with Kawasaki,” Diana Shipping Inc, November 28, 2023.)
The gross charter rate for this contract is $20,000 per day, minus a five-percent commission. This charter began on December 7 and is expected to last until at least August 15, 2025, up to a maximum end date of October 31, 2025.
The Capesize contract is anticipated to generate gross revenues of about $12.16 million for the minimum scheduled period of the time charter.
Management Reported Another Profitable Quarter
Also in November, Diana Shipping announced its financial results for the third quarter of 2023.
The company reported net income attributed to common stockholders of $5.9 million, compared to $30.3 million in the third quarter of 2022. (Source: “Diana Shipping Inc. Reports Financial Results for the Third Quarter and Nine Months Ended September 30, 2023,” Diana Shipping Inc, November 15, 2023.)
Diana Shipping’s earnings per share (EPS) in the third quarter of 2023 were $0.06 (basic and diluted), compared to $0.39 (basic) and $0.37 (diluted) in the same period of 2022. The lower EPS in the third quarter of 2023 were a result of lower time charter revenues, which were $62.1 million in the third quarter of 2023, compared to $73.8 million in the third quarter of 2022.
Commenting on the results, Semiramis Paliou, Diana Shipping Inc’s director and CEO, said, “We are delighted to announce yet another profitable quarter and nine-month period for our company. Our unwavering commitment to our long-term strategy has yielded positive results.” (Source: Ibid.)
DSX Stock’s Dividends a Testament to Company’s Success
Diana Shipping Inc has continuously paid quarterly distributions since November 2021. Between then and November 2023, the company had paid total cash dividends of $1.45. (Source: Ibid.)
In September 2023, Diana Shipping paid dividends of $0.15 per share, for a yield of 20.2% (as of this writing).
Diana Shipping stock’s high-yield dividend appears safe, but it hasn’t always been that way. From June 2005 to December 2008, Diana Shipping raised its quarterly payout from $0.08 to $0.95 per share. At the end of 2008, the company suspended its dividends. (Source: “Cash Dividend History Common Shares (NYSE:DSX),” Diana Shipping Inc, last accessed January 5, 2024.)
Management didn’t suspend the dividends because the company was doing poorly. They did it to take advantage of future market opportunities. The move helped enhance the company’s financial flexibility and allowed it to divert cash flow from paying dividends to growing its business.
Between 2005 (when Diana Shipping went public) and 2008, DSX stock delivered a total annualized rate of return to shareholders of more than 27%. That compares very favorably to the rates of return from other dry bulk shipping stocks and the S&P 500 over the same period.
Since then, Diana Shipping Inc has doubled the size of its fleet and has significantly increased its earnings. That allowed management to resume the company’s distributions in November 2021. Note that the company’s distribution fluctuates based on its earnings.
Diana Shipping Stock Has 34% Upside
Since September 2022, DSX stock has, for the most part, traded rangebound near a tested support level of $3.00 per share.
As of this writing, Diana Shipping stock is down by 11% year-over-year, but its outlook is bright.
Analysts have provided a 12-month average share-price forecast for Diana Shipping Inc of $4.00 per share. This points to potential upside of 34%.
Chart courtesy of StockCharts.com
The Lowdown on Diana Shipping Inc
Diana Shipping is an excellent marine shipping company that has been growing its fleet and reporting terrific financial results, including ongoing profitability.
While fears of a possible recession remain, the company’s long-term contracts insulate it from economic headwinds that negatively affect other industries. Right now, market conditions are positive, which should allow Diana Shipping Inc to continue reporting robust free cash flow and paying inflation-crushing dividends.
