Genco Shipping & Trading expects the shareholder dividend for this year’s third quarter to surpass the $0.50 per share paid in the second quarter, thanks to healthy charter coverage and iron-ore volumes from Brazilian miner Vale.
The New York-listed owner of 44 bulkers has paid a quarterly dividend consistently since the third quarter of 2019, but it has fluctuated based on the market and other factors.
John Wobensmith-led Genco’s quarterly payouts to stakeholders have ranged from $0.02 per share in 2020 and 2021 to $0.79 for this year’s first quarter.
The company based its expectation on having 80% of its fleet fixed at more than $25,000 per day during the three-month period and a higher ore volume from Vale during this year’s second half.
“I think even if you use the FFA [forward freight agreement] curve for the remaining 20%, the third quarter will definitely be a higher dividend than the second quarter,” Wobensmith told TradeWinds.
He acknowledged that China’s longer-than-expected Covid lockdowns have hurt steel-making and therefore ore imports, but the low end of Vale’s production guidance for full-year 2022 still implies that the iron ore giant will produce 20% more of the commodity in the second half than it did in the first half.
“It’s less dependent on outbreak demand, so we may see prices of iron ore go down a little bit, but I still think those volumes are going to appear,” he said.
But Wobensmith said he expects that Vale will ship more of the commodity to China in the fourth quarter, compared to the third quarter, because China’s latest round of economic stimulus payments has yet to boost its economy.
“That has just started to click in, and that usually takes a quarter or two in terms of lag before you see the benefits of that,” he said.
Genco is getting votes of confidence from analysts, having received reaffirmations of “buy” status on its stock from Jefferies and B Riley Financial.
Jefferies analyst Omar Nokta noted that Genco’s low debt of $188m does not mature until 2026, but he still expects that the owner will keep prepaying it while having $270m in liquidity.
“Given its strong balance sheet and meaningful dividend payout, Genco is an attractive investment in our view — especially as the shares trade well below our NAV [net asset value] estimate of $25 per share,” he wrote in a note on Thursday.
B Riley Financial analyst Liam Burke praised Genco’s overall fiscal performance, which allowed it to improve its second-quarter profit to $47.6m from the $32m earned in the same period last year.
“Genco’s diverse, actively managed fleet is maximising operating cash flow through low daily cash flow break-even rates per vessel that allow the company to generate a healthy dividend payout on cash flow after debt service,” he wrote in a note.
He also gave kudos to Genco for maintaining a capital reserve that makes room for accelerated debt amortisation, opportunistic vessel acquisitions and share repurchases.
