Diana Shipping Stock: A 15.7%-Yielder with 27% Upside?

Why am I highlighting Diana Shipping stock today?

Well, investors often overlook marine shipping stocks when the economy is slow.

On one level, it makes sense, weak economic growth will lead to fewer products or commodities being shipped.

On the other hand, there are marine shipping companies like Diana Shipping Inc (NYSE:DSX) that avoid much of that uncertainty by signing multi-year contracts, which need to be paid regardless of what’s happening with the economy.

Right now though, the outlook for the marine shipping industry remains solid. Trade data have been better than expected with challenges in the Red Sea and Suez Canal forcing customers to pay premium rates for longer shipping routes.

And while there will eventually be a ceasefire in Gaza, there are questions about whether the Houthi would stop attacking vessels. There is also the question about how different shipping companies will react to a ceasefire and how quickly they would return to the Red Sea.

Beyond that, the outlook for the ocean freight industry looks solid for 2025, with analysts predicting a steady increase in seaborne trade, including growth rates ranging from two to three percent. (Source: “Understanding 2025 Ocean Freight Market Trends,” JUSDA, September 29, 2024.)

Even further out, the seaborn trade industry looks bullish, with industry experts predicting that trade will increase from nine billion tonnes annually to between 19 billion and 24 billion tonnes by 2030. Even the most bearish scenario points to strong maritime growth. And this growth, coupled with an aging fleet and few newbuildings bodes well for Diana Shipping and its stock.

The Athens-Greece-based company provides global marine shipping transportation services. The company’s vessels are used primarily on short-to-medium-term time charters and carry a range of dry bulk cargoes, including iron ore, coal, grain, and other materials along worldwide shipping routes. (Source: “About Us,” Diana Shipping Inc, last accessed October 21, 2024.)

Diana Shipping’s fleet consists of 39 dry bulk vessels. The combined carrying capacity is approximately 4.4 million deadweight tonnage (dwt) with a weighted average of 10.9 years and the average contract duration is 1.34 years. The average fleet utilization rate has been 99.5%.

That number continues to grow. Diana Shipping will be adding two new Kamsarmax dry bulk vessels, at a purchase price of $46.0 million each, to its fleet in 2027 and 2028. (Source: “Diana Shipping Inc. Announces the Signing of Shipbuilding Contracts for Two 81,200 dwt Methanol Dual Fuel New-Building Kamsarmax Dry Bulk Vessels,” Diana Shipping Inc, February 14, 2024.)

For the second quarter ended June 30, 2024, Diana Shipping reported time chart revenue of $56.0 million, down from $67.4 million in the same prior-year period. The drop in time chart revenue was due to decreased average charter rates and ownership days. (Source: “Diana Shipping Inc. Reports Financial Results for the Second Quarter and Six Months Ended June 30, 2024; Declares Cash Dividend of $0.075 per Common Share for the Second Quarter 2024,” Diana Shipping Inc, July 31, 2024.)

On a daily basis, the time charter equivalent (TCE) rate was $15,106 with daily vessel operating expenses of $5,993. In the second quarter of 2023, the TCE rate was $17,311 with daily operating expenses of $6,057.

As of the end of the second quarter, Diana Shipping had secured $76.8 million in revenue for the remainder of 2024 with average daily time charter fixed revenue of $17,138. We’ll find out how much that has changed when the company announces its third-quarter financial results.

Diana Shipping reported a net loss of $2.8 million, or a loss of $0.04 per share. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) were $23.2 million, compared to $32.9 million in the second quarter of 2023.

On the plus side, its voyage expenses fell to $3.1 million from $3.6 million, while vessel operating expenses dropped to $21.3 million from $22.6 million. It ended the quarter with cash and cash equivalents of $140.0 million.

The company didn’t provide any guidance, but analysts expect earnings to slip from $0.39 per share in 2023 to $0.27 per share in 2024, before rebounding to $0.92 per share in 2025. (Source: “Diana Shipping Inc. (DSX),” Yahoo! Finance, last accessed October 21, 2024.)

Diana Shipping stock has been rewarding shareholders with a reliable dividend since 2021. While the payout will fluctuate based on earnings, the company has not missed a payout since the third quarter of 2021. In fact, since then, it has paid cumulative dividends of $2.64 per share.

With Diana Shipping stock currently trading hands at $2.34 per share, this payout represents 112% of the current share price.

That total includes Diana Shipping stock’s second-quarter dividend of $0.075 per share, or $0.38 per share on an annual basis, for a current forward yield of 15.69%.

The ultra-high-yield dividend payout is safe, but it hasn’t always been that way. Diana Shipping paid out a dividend on its common shares between 2005 and 2008, before suspending it. During that period, Diana Shipping stock’s quarterly payout increased from $0.08 per share to $0.95.

Diana Shipping suspended its dividend in 2008 to take advantage of future market opportunities, which helped enhance its financial flexibility, diverting cash flow that would have gone to dividends to be used to grow the company.

What the shipper didn’t do was suspend its dividend because it was doing poorly. Between when it went public in 2005 and 2008, Diana Shipping Inc produced a total annualized rate of return to shareholders of more than 27%. This compares very favorably to that of the other dry-bulk shares, as well as to that of the S&P 500 over the same period.

Since then, Diana has doubled the size of its fleet size and significantly grown its earnings. This allowed Diana Shipping stock to resume its distribution in the third quarter of 2021. The distribution will, of course, fluctuate based on its earnings.

To be fair, DSX stock hasn’t given shareholders any reason to cheer over the last few years. In fact, it’s trading at its lowest level since April 2021. While Diana Shipping stock is trading deep in the red, down 14.6% year to date and 20.9% on an annual basis, its outlook is solid. At least it is if Wall Street gets its way.

Analysts have provided a 12-month average share price forecast of $3.00 per share. This points to potential upside of 27.9% with Diana Shipping stock. That bullish call comes on the heels of strong earnings and revenue guidance for 2025.

In addition to earnings being expected to jump from $0.27 in 2024 to $0.92 in 2025, revenue is projected to rise from $247.5 million this year to $323.5 million in 2025; that’s well above their pre-health-crisis level of $220.7 million in 2019.

This should, of course, help energize Diana Shipping stock and its dividend payouts.

Chart courtesy of StockCharts.com

Diana Shipping is a leading pure-play dry bulk shipping company that has safely navigated through various shipping cycles since 1972. It’s growing its fleet and continues to report solid financial results.

The outlook for Diana Shipping remains robust with demand growing in the Atlantic, the grain trade showing steady growth over the past decade, and bulk commodity shipments to India and China increasing.

Disruptions in the Red Sea continue to increase per-ton-mile demand and significant investments in new and existing production facilities for iron ore, manganese, bauxite, and grains is expected to continue to support further increases in ton-mile demand for years to come.