Golden Ocean Group Ltd: 11%-Yielder Crushing the Market
November 18, 2024
Golden Ocean Group Stock Up 25% in 2024
Investors might like it better when the markets are calm, but dry bulk shipping stocks like Golden Ocean Group Ltd (NASDAQ:GOGL) are riding the wave of volatility and the opportunities it’s creating.
The Chinese economy may be underperforming and the European economy may be flat, but the U.S. economy continues to perform well. Moreover, conflict in the Middle East is forcing marine shipping vessels to take longer routes, with higher ton-miles fueling profits.
Challenges in the Middle East will subside, granted, but the longer-term outlook for the dry bulk market remains resilient. From 2023 to 2030, the dry bulk market is projected to grow from $44.5 billion to $66.9 billion, expanding at a compound annual growth rate of six percent. (Source: “Dry Bulk Shipping Market by Type, Vessel Type, End-Use – Global Forecast 2025-2030,” Research and Markets, last accessed November 5, 2024.)
Key growth drivers for the market include a shortage of dry bulk ships and higher global trade volumes, particularly with emerging markets and increased demand for raw materials.
Operational efficiencies and rigorous environmental regulations resulting in cleaner, more fuel-efficient ships will also generate new market opportunities. And this should bode well for Golden Ocean Group, a leading dry bulk shipping company.
Hamilton-Bermuda-based Golden Ocean is the world’s largest publicly listed dry bulk company. It operates a fleet of 93 dry bulk vessels focused on the largest segments: the Capesize and Panamax markets. (Source: “Investor Presentation September 2024,” Golden Ocean Group Ltd, September 12, 2024.)
Capesize vessels, the largest class of bulkship, are used to transport coal and iron core. 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, meanwhile, are the largest class of ship that can navigate the Panama Canal.
The daily cash breakeven rate for Capesize vessels is $15,200, while it would cost a company $11,700 per day to charter a Panamax vessel. This puts the average cash breakeven per day for the entire fleet at $13,800.
Above-Market Performance
For the second quarter ended June 30, 2024, Golden Ocean reported net income of $62.5 million, or $0.31 per share, down slightly from $65.4 million, or $0.33 per share, in the first quarter of 2024. (Source: “GOGL – Second Quarter 2024 Results,” Golden Ocean Group Ltd, August 28, 2024.)
Adjusted net income advanced 8.5% to $63.4 million, compared to $58.4 million for the first quarter of 2024. The company reported adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $120.3 million, up 5.2% from $114.3 million in the first quarter.
During the second quarter, Golden Ocean reported daily time charter equivalent (TCE) rates for Capesize vessels of $28,005 and TCE for Panamax vessels of $23,535. This resulted in an average of $23,535 per day for the entire fleet, which was 70.5% above the average cash breakeven per day rate of $13,800.
At the time of its second-quarter earnings announcement in late August, the company said its estimated TCE rates for the second quarter were $26,200 per day for 83% of Capesize available days and $17,200 per day for 94% of Panamax available days for the third quarter of 2024.
For the fourth quarter, Golden Ocean was able to report $25,800 per day for 29% of Capesize available days and $17,900 per day for 18% of Panamax available days.
Commenting on the results, Peder Simonsen, the interim chief executive officer and chief financial officer said, “Despite a volatile macro and geopolitical backdrop, the dry bulk shipping market remains healthy, and Golden Ocean continues to deliver above-market performance. While we continue to opportunistically secure charter coverage, we retain significant exposure to a market we believe will strengthen as the year progresses.”
14 Consecutive Quarters of Dividends
Dividends are a cornerstone for Golden Ocean and its capital allocation strategy, with the stated goal of growing its annual dividend. When times are good, of course. The company suspended its distribution during the 2020 health crisis and reinstated it at the start of 2021. It hasn’t missed a payout since then.
Times are good right now for Golden Ocean. This translates into a reliable dividend. In August, it declared a second-quarter dividend of $0.30 per share, or $1.20 per share on an annual basis, for a current yield of 11.06%. (Source: “Dividend,” Golden Ocean Group Ltd, last accessed November 5, 2024.)
You can see in the chart below that Golden Ocean’s quarterly dividend payout fluctuates based on TCE rates and earnings. And it can fluctuate wildly.
| Period | Dividend Per Share |
| Q2 2024 | $0.30 |
| Q1 2024 | $0.30 |
| Q4 2023 | $0.30 |
| 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 |
GOGL Stock Up 63.5% Year Over Year
Thanks to resilient TCE rates, Golden Ocean is able to report solid financial results, dividends, and share price gains. As of this writing (November 5), GOGL stock is thumping the broader market, up:
- 25% year to date
- 62.5% year over year
For comparison’s sake, the S&P 500 is up:
- 21% in 2024
- 32.5% year over year
The good times are expected to continue for GOGL. Back in May, the stock hit a 52-week high of $15.02. Wall Street analysts have provided a 12-month share price target range of $15.73 to $17.90.
Hitting either target would mean that GOGL would be trading at its highest levels since 2014, representing potential gains of 39% to 58%.
Chart courtesy of StockCharts.com
The Lowdown on Golden Ocean Group
The world’s leading owner of large-size dry bulk vessels, Golden Ocean Group Ltd, continues to be a great marine shipping stock.
The company’s large, modern fleet has been largely exposed to the spot market, resulting in a strong performance.
Golden Ocean entered 2024 on strong demand for the large vessel segment, particularly with Chinese demand for bauxite and new iron ore export projects under development in the Atlantic Basin expected to be long-term growth drivers.
On the supply side, fleet growth is moderating and environmental regulations are expected to constrain fleet capacity.
As a result, Golden Ocean is well positioned to continue to generate strong cash flows based on its fleet premium and industry-leading cash breakeven levels. Accordingly, management expects the company “to continue to deliver strong returns” for its shareholders.
