Star Bulk Carriers' decision to implement a quarterly dividend policy should give a significant boost to the company's shares — perhaps even double their value, according to one analyst.
The Petros Pappas-led owner of 118 bulk carriers announced Wednesday after Wall Street's closing bell that it plans to offer a regular quarterly dividend, starting with a $0.05 payout for the third quarter.
"Yes, this dividend policy is a game-changer," Deutsche Bank's Amit Mehrotra told TradeWinds Thursday morning.
Wednesday's announcement marked the first time Star Bulk had declared a dividend in seven years.
The company plans to give a quarterly dividend if it has a minimum cash balance after subtracting a certain minimum cash balance per ship.
Star Bulk has set up a quarterly minimum cash balance per vessel schedule that starts at $1m per ship at the end of this year and goes up to $2.1m by the third quarter of 2021.
The policy may yield a 2020 dividend of more than $2 per share if operating profit hits at least $470m for the year, causing the stock to bound upward, Mehrotra said.
"A reasonable 10% div yield would equate to equity value approaching $22 per share, more than double current levels," he wrote in a client note.
Star Bulk's shares, which trade on the Nasdaq as SBLK, have gained 6.9% to $10.74 within the first two hours of trading Thursday.
Stifel analyst Ben Nolan on Wednesday night predicted the stock would trade "flat to low" Thursday morning since Star Bulk's $0.18 earnings per share missed consensus by $0.03.
"I think the dividend policy is great, but this quarter earnings misses have tended to be what was having the most impact on share price," he told TradeWinds Thursday morning.
"Glad to see folks looking past that."
Jefferies analyst Randy Giveans said Star Bulk's shares should benefit in 2020 from a "positive trifecta" of the dividend policy, strong rate guidance and the company's significant progress on scrubber retrofits before IMO 2020.
"The dividend is big deal; we expect a large payout in 2020," he told TradeWinds.
"It's hard to predict what shares will do intraday, but we expect a dry bulk rate rally in December, which should bode well for SBLK shares."
