My High Dividend Stocks Blog

My High Dividend Stocks
This is my high dividend stocks site where I help site members find high dividend stocks with earning power and strong balance sheets.

Don't buy Safe Bulkers yet even though it is below $7.00

Safe Bulkers has been absolutely hammered since April of 2011, but don't buy it yet.  I know it is in value territory right now.  But trust me...it will go lower with the world economy because dry bulk shipping rates are affected by the world economy.  Wait until the technicals show a bottom for this excellent dividend company.
 
You can read all my articles on Safe Bulkers fundamentals by clicking on this link: http://www.myhighdividendstocks.com/category/high-dividend-stocks/sb
 
 
Here is the link to the SB chart if it doesn't appear above: http://stockcharts.com/h-sc/ui?s=SB&p=W&b=5&g=0&id=p02710131286
 
The technicals I'm looking for are the CCI coming out of the red zone, the price lifting off the lower Bollinger Band, and the MACD turning upward.
 
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Safe Bulkers on sale, but wait for the bottom.

 
It suggest that the recent 16% in the Baltic Dry Index is forecasting improvement to worldwide economic conditions.  This is nothing but Keynesian wishful thinking.  Government debt crises all over the world coupled with very high unemployment and massive quantities of fiat money printing will sink economies from here.  I like Safe Bulkers, but you will be able to buy it much cheaper than today.
 
It isn't done going down.
 
 
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An opportunity to pick up Safebulkers (SB) below $7.00 per share (9.6% dividend yield) will come again.

You had your chance to buy Safebulkers (SB) below $7.00 like I recommended: http://www.myhighdividendstocks.com/category/high-dividend-stocks/sb 
 
SB has gained 21% ($6.20 to $7.56) since its 52 week bottom on August 8th, 2011.  Safebulkers was yielding 9.6% at the bottom also.  It didn't expect you to buy at the exact bottom.  If you used my combination of technical indicators: CCI, Bollinger Bands, and MACD then you would have bought on August 14th or 15th at around $7.00 per share.
 
Disclosure: I don't own Safebulkers yet because I'm paying down some debts.  That is using all my free cash flow, but it pains me to miss this opportunity.  I believe that the next crash of the stock market will take Safebulkers down with it and present more buying opportunities.
 
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Analysis of Safe Bulkers (SB) 2nd Quarter Results

Safe Bulkers (SB) reported 2nd quarter financial results on Thursday July 21st, 2011.  Their board of directors declared a continuation of the $0.15 quarterly dividend.

http://bit.ly/SB2Q2011report 

The dividend is payable on or about August 31st, 2011 to shareholders of record at the close of trading of Safe Bulkers common stock on the NYSE on August 24th, 2011. Safe Bulkers has paid a $0.15 quarterly dividend since it's 2008 public offering.  They haven't established themselves as dividend growers, but the dividend yield of 8.3% is tremendous ($0.60 annual dividend / $7.21 share price).

Safe Bulkers dividend is still safe even in this horrible drybulk shipping market brought on by the global recession created by Keynesian central bank monetary expansion.  SB earned $0.27 per share this quarter and paid a $0.15 dividend.  The dividend payout ratio rose to 55.5% from 38.7% in 2010.  I don't like to see the dividend payout ratio to rise unless the dividend is increased.  But this increase in the dividend payout wouldn't worry me until it approaches 90%.  SB paid the same $0.60 annual dividend while earning an adjusted $1.55 in 2010.  The company conducted a 5 million share equity offering since 2010, so the $1.73 2010 EPS needed to be adjusted downward.

This year's annual earnings are on pace to be the lowest in the history of the company.  Safe Bulkers has earned an average of $1.90 per share over the past five years (adjusted for changes in capitalization due to share increases).  SB earned $0.41 in the first quarter of 2011.  It earned $0.27 this quarter.  Some faceless, nameless analysts expected earnings of $0.37 per share according to Reuters financial website.  Therefore, the financial press considered this quarter a earnings miss.  Let's assume that SB only earns 90% of it's 2nd quarter earnings in the 3rd and 4th quarters.    With these conservative assumptions the company would earn $1.16 per share.  This would bring the six year average EPS (adjusted) down to $1.84.  Safe Bulkers remains an extreme value stock trading at 3.92 average earnings including my hypothetical earnings estimates for the remainder of the year.  Consider buying SB below $22.08 per share (12 times average adjusted earnings).  Consider selling SB above $36.80 (20 times average adjusted earnings).  This high dividend stock is so cheap compared to other stocks!!

Coca-Cola (KO) trades at around 26 times average earnings.
Pfizer (PFE) trades at around 18.2 times average earnings.
Proctor & Gamble (PG) trades at around 16 times average earnings.

Safe Bulkers has 16 ships in it's operational fleet.  The fleet's average age is 4.4 years.  There are another 11 that will be added to the fleet over the next three years.  The company's average time charter equivalent (TCE) rate (think of as revenue per ship per day) was $27,921 in this quarter.  Estimated 2011 revenue = 16 ships x 361 operational days (99%) x $28,000 TCE = $160 million.  Only 23% of the fleet is rented out on the abysmal spot dry bulk market characterized by the Baltic Dry Index.  So only a small portion of SB's revenues are affected by the current market. Their fleet is contracted out at 59% in 2012 including the new ships joining the fleet.  If you are considering a purchase of Safe Bulkers, then you must monitor the Baltic Dry Index weekly (note: the BDI has taken a huge hit in the past three years due to the massive drop in the capesize rental prices.  Capesizes are the biggest ships.  SB owns very few of them, so the BDI can lose a larger percentage than SB's TCE in the same amount of time.)

Balance sheet (improving slightly)
Shareholder equity increased by $65.6 million.  Nearly $40 million of the additional equity came from the equity offering.

Companies with current ratios above 2.0 and a quick ratio above 1.0 are usually financially sound.  They have enough current assets to cover their current liabilities more the twice over.  The quick ratio measures cash on hand divided by current liabilities.  SB's current ratio dropped from 2.0 to 0.62 and their quick ratio dropped from 1.9 to 0.5.  The company's current ratio and quick ratio decreased due to spending money on advances to shipyards building their new ships.  These ratios should increase back to excellent levels once the new ships start producing revenues.

Conclusion: Safe Bulkers earnings miss will create an opportunity for high dividend stock investors who have done there homework to buy this excellent company at a low price.

Disclosure: I don't own Safe Bulkers, but I would like to.

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Safe Bulkers (SB) edges closer to a value buy opportunity

The Baltic Dry Index tracks the spot market dry bulk shipping rental rates.  The BDI has barely recovered from its January 2011 bottom.

http://bloom.bg/BDI_moves_lower

Traders/investors use the BDI as a barometer of global trade.  A lower BDI equates to a double dip recession in their minds.  Further erosion of the spot market will cause investors to sell dry bulk shipping stocks.  This will provide an opportunity to buy high dividend stocks like Safe Bulkers (SB) at a lower price.

Image003

http://bit.ly/BDI2yearChart

Consider buying Safe Bulkers at or below $7.00.  Most of Safe Bulkers 16 ships are not contracted in the spot market.  They are in long term contracts between $20,000 and $30,000 per day.

Image005

http://bit.ly/SB2yearChart

Please follow this link if you want to read my analysis in support of Safe Bulkers as a best dividend stock: http://bit.ly/SafeBulkers  Those articles cover its dividend record, earnings power, and its balance sheet.

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Safe Bulkers (SB) will report 2nd quarter results on July 21st.

Safe Bulkers (SB) will report 2nd quarter results on July 21st.

http://finance.yahoo.com/news/Safe-Bulkers-Inc-Sets-Date-iw-3230380523.html?x...

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Safe Bulkers (SB) is smart to buy ships at deep discounts. Now that's capitalism.

Safe Bulkers (SB) is one of my favorite high dividend stocks because it has a good dividend record, stable earning power in the worst dry bulk shipping market since they have been keeping records, and their balance sheet is strong.  Safe Bulkers (SB) might buy up to 10 ships next year.  This is smart because there will be bargains to buy.  Successful businesses buy assets cheap and put them to work profitably.  If they make smart purchases, then they won’t damage their balance sheet in the process.

This is from Reuters India:

BANGALORE | Fri Jul 15, 2011 1:19am IST

BANGALORE (Reuters) - Safe Bulkers Inc(SB.N), the fourth-largest U.S.-listed dry bulk carrier by market value, may buy up to 10 vessels next year as the weak market promises cheap bargains, its top executive said.

The company expects the new vessels to start operating by 2013, helping it cash in on the improving market where demand will outpace deliveries leading to better freight markets.

"By this time next year, we will have opportunities to order more ships as prices next year will be lower which will enable us to buy more reasonably prices ships," Chief Executive Polys Hajioannou said in a telephone interview from Athens.

The Greece-based company has a fleet of 16 vessels -- mostly from Japanese shipyards -- which mainly carry thermal and coking coal and it has 11 vessels scheduled to be delivered at various times through 2014.

Hajioannou expects to have a "fire power" of about $320 million to buy vessels, with $160 million of that being raised as debt by offering ships as collateral.

"We hope that the shipyards, mostly Japanese, should deliver competitive prices next year. At the moment they are not delivering competitive prices because the yen is strong now," Hajioannou said.

Since the downturn, the price of a panamax vessel has fallen almost 30 percent to about $33.5 million currently and is expected to drop further to $30 million by the end of the year.

Ship owners went on an ordering spree before the economic turmoil, resulting in an oversupply condition that hit the market hard. This has also forced companies like DryShips Inc (DRYS.O) to diversify into drilling and tanker businesses.

Safe Bulkers, valued at $545.8 million, however, has no such plans.

"We will remain dedicated to bulk shipping," Hajioannou said. "We don't believe that companies should be active on too many fronts, as it becomes difficult to monitor all markets."

The CEO expects a better dry bulk market next year as Japan, a big commodity consumer, will import more iron-ore and coal to help the reconstruction of the quake-hit country.

Commenting on the issue of piracy, Hajioannou, who is also a founding member of the Union of Cyprus Shipowner, said the shipping sector will have to live with the reality of piracy off the Somalia coast.

Piracy attacks have risen by a third in the first half of the year, and become more violent, with pirates using grenade launchers, machine guns and other weapons.

"I don't think there's a political will from the governments to intervene," the football fan said.

(Reporting by Vaishnavi Bala in Bangalore; Editing by Saumyadeb Chakrabarty)

Link to original article: http://in.reuters.com/article/2011/07/14/idINIndia-58265820110714

Disclosure: I don’t own Safe Bulkers, but I’d like to.

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TIP OF THE WEEK - The Usefulness of Bollinger Bands

The Usefulness of Bollinger Bands

Jason Brizic

June 8, 2011

Bollinger Bands are a technical trading tool created by John Bollinger in the early 1980s. They arose from the need for adaptive trading bands and the observation that volatility was dynamic, not static as was widely believed at the time.

The purpose of Bollinger Bands is to provide a relative definition of high and low. By definition prices are high at the upper band and low at the lower band. This definition can aid in rigorous pattern recognition and is useful in comparing price action to the action of indicators to arrive at systematic trading decisions.

Bollinger Bands consist of a set of three curves drawn in relation to securities prices. The middle band is a measure of the intermediate-term trend, usually a simple moving average, that serves as the base for the upper band and lower band. The interval between the upper and lower bands and the middle band is determined by volatility, typically the standard deviation of the same data that were used for the average. The default parameters, 20 periods and two standard deviations, may be adjusted to suit your purposes.

You can use Bollinger Bands to help you time your purchase of high dividend stocks, commodities, and contrarian stocks.  Price bottoms tend to occur when the stock price lifts off the long downward slide down the lower band.  Price tops tend to occur when the stock price falls from hitting its head on the top of the upper band.  I use the MACD and CCI in conjunction with the Bollinger Bands to confirm a top or bottom because just using the Bollinger Band alone can get you burned (the UNG example below).

I use Bollinger Bands when I create free charts on www.stockcharts.com.

Here are the steps I take to setup my charts in less than 10 seconds:

  1. Leave the Type of chart: set to SharpChart.
  2. Type in the ticker symbol and click Go.
  3. Change the Period to Weekly.
  4. Scroll down to Chart Attributes; change Size to Landscape.
  5. Check the following checkboxes: Full Quote, Price Labels,
  6. Uncheck the Log Scale checkbox.
  7. Scroll down to the Overlays area.  Change the one that says –None- to Bollinger Bands
  8. Scroll down to the Indicators area.  Change the one that says RSI to CCI

I discovered the usefulness of Bollinger Bands when I tried to time the recent bottom in the gold price back in 2008  Here is the 3 year gold price chart:

Image002

http://stockcharts.com/h-sc/ui?s=$GOLD&p=W&b=5&g=0&id=p99091791121

When was the best time to buy gold on this chart? $681 in late October 2008.  What happened right after that point?  The price lifted off the bottom Bollinger Band.  The CCI was deep in the red and the MACD turned upward from negative territory.  Those confirmed the bottom.  I bought at $820.

The natural gas ETF trading as UNG provides a good example of how the solely relying on the Bollinger Bands alone can trick you into buying too high.  Look at this chart:

Image003

http://stockcharts.com/h-sc/ui?s=UNG&p=W&b=5&g=0&id=p99958479096

Wow!  This fund has lost a lot of money.  The price of UNG lifted off the bottom Bollinger Band many times, but never enough to bust through the middle band.  The CCI and MACD indicators were good at around March 2009, but the price didn’t break through the middle BB.  Knowing the fundamentals of UNG were horrible was enough to stay away from the fund.  However, just carefully examining the technicals was also enough.

I use the fundamentals to decide to buy or sell.  Then I use the technicals to time my entry or exit.  I will write about the CCI and MACD in upcoming tips of the week.

The fundamentals of Safe Bulkers were strong during the big market crash of 2008-2009.  You could have used Bollinger Bands to get this gem at around $3.00 per share.

Image004

http://stockcharts.com/h-sc/ui?s=SB&p=W&b=5&g=0&id=p24023572905

For more tips, go here:

http://www.myhighdividendstocks.com/category/tip-of-the-week

DryShips (DRYS) earns an upgrade. Why?

I read a short post on shipping upgrades and downgrades.  Here is the short post:

Shares of dry bulk shipping firm DryShips (DRYS) are soaring 3% after the stock earned its second upgrade this week. Sterne Agee raised its rating on the stock to “buy” from “neutral” with a $6 price target, which is more than 50% above where the shares currently trade. The research firm said the coming spin-off of the DryShips ocean rig unit could unlock value for shareholders.

The news isn’t doing much to help the fortunes of the Dry Bulk Shipping Stocks Index, which is down 1%. Earlier this week, Wells Fargo upgraded DryShips to “outperform” from “market perform” with a price target range of $5-$6.

Shares of Diana Shipping (DSX) are tumbling 5% on news of a Credit Suisse downgrade. The bank pared its rating on Diana to “underperform” from “outperform,” saying it expects supply to outpace demand in the dry bulk shipping market. The bank slashed its price target on Diana to $8 from $15 and the new price target is more than 25% below where the stock currently trades.

Looking at other Index members, Safe Bulkers (SB) is up 1% while Navios Maritime Holdings (NM) is up about half a percent. Eagle Bulk Shipping (EGLE) and Excel Maritime Carriers (EXM) are both lower by 1%.

Investors can track the Dry Bulk Shipping Stocks Index for performance trends and a suite of other metrics at tickerspy.com.

I like Safe Bulkers, but I like to check out the competition.  So I decided to take a quick look at DryShips.  Here is what I found.

DryShips (DRYS)

Market price: $4.20

Shares: 399.14 million

Market capitalization: $1.68 billion

Dividend record: no dividend since 2008.  The dividend was cut entirely in 2009.

Earning power: $0.16 average earnings @ 399.14 million shares

Recent EPS: $0.63

(earning adjusted for changes in capitalization; massive issuance of new shares since 2006)

            EPS       Net inc.             Adj. EPS

2006     $1.75    $57 M                $0.14

2007     $13.40  $478 M              $1.22

2008     ($8.11) ($361 M)           ($0.90)

2009     ($0.13) ($27 M)             ($0.07)

2010     $0.61    $173 M              $0.43

Five year average EPS is $0.16

Value price territory below 12 times average earnings = $1.97

Speculative price territory above 20 times average earnings = $3.20

DRYS trades at 26.25 times average earnings.  This is very speculative.

Balance sheet: Improving, mostly from issuance of new stock equities

Image003

Book value per share: $10.43

Price to book value: 0.40 (this is very good)

Current ratio: 0.72 (over 2.0 is good)

Quick ratio: 0.24 (over 1.0 is good)

Conclusion: no dividend, puny earning power, and a balance sheet based on stock issuance.  No thanks.  Chose the high dividend stocks Safe Bulkers instead.

Disclosure: I don’t own DryShips (DRYS) or Safe Bulkers (SB), but I want to own SB.

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Are you missing out on a 8.47 dividend yielder near it 52 week low?

Safe Bulkers (SB) is on sale.  Did you miss buying Safe Bulkers (SB) just 8.4 percent above its 52 week low?  Safe Bulkers closed at $7.22 per share today (+$0.14 from yesterday).  This high dividend stocks yield is currently 8.47 percent.  The $0.15 quarterly dividend is safe, it has average five year earning power of $1.90, and it balance sheet is good.
 
The present $0.15 quarterly dividend is safe even if you disregard the small amount Safe Bulkers revenue generated from several ships not on long term contracts.  Those ships are operating in the depressed spot market, but they are not idle.  Here is a summary of the company's contracted vessels over the next three years.  This information comes from Safe Bulkers latest quarterly earnings press release
     2011: 75% of Safe Bulkers 16 ship fleet is contracted.  25% of the fleet is operating in the spot market.
     2012: the contracted fleet ownership days drops to 59%.  39% would have to operate in the spot market unless SB finds some long-term contracts to enter into.
     2013: the contracted ownership days drops to a little more to 52%.  48% of the fleet is not under contract yet.
 
These number do not include the new-build addition of 14 new ships to the fleet between today and 2014.
 
How can I calculate estimated revenues for SB over the next few years?  Here is my formula.  I will multiple the number of ships in the fleet (16) times the number of days the fleet is contracted (365 x the contacted percentage) times the time charter equivalent from 2010 ($29,300).  Safe Bulkers time-charter equivalent was $29,300 per day per ship in 2010.  Think of this number as the average revenue number per ship per day.  Some ships are on contract for higher and some are on contract for lower, but $29,300 turns out to be the average for the company fleet overall.  This will give me the estimate revenue for each year for the ships already under contract.
 
     2011: $128.3 million revenue from contracted shipping
     2012: $100.9 million revenue from contracted shipping
     2013: $88.97 million revenue from contracted shipping
 
It costs $53.264 million dollars to operate and maintain the fleet of 16 ships per year using the cost rates from Safe Bulkers most recent quarterly income statement.  I'm including the ships operating on the spot market for costs, but I'm excluding them from the revenues to help prove how strong and safe SB's dividend is.
 
Estimated net income from contracted shipping
     2011: $75.036 million ($128.3 M - $53.264 M = $75.036)
     2012: $47.636 million
     2013: $35.706 million
 
Could Safe Bulkers pay its current dividend of $0.15 per quarter per share with just its contracted shipping over the next few years?  Yes, it could mostly pay the dividend over the next few years just with its currently contracted fleet.  Safe Bulkers had 71,633,284 shares outstanding as of May 2nd, 2011 (including the underwriters option to purchase 750,000 shares on top of the 70,883,284 outstanding).  It would cost SB $42.997 million dollars per year to pay its current dividend out to all those shares.  You can plainly see that most of the dividends can be easily covered with just the contracted ships in the fleet.  Keep in mind that annual interest expenses only amount to $6.8 million per year.
 
Take the numbers above and then factor in the fact that the ships in the spot market will be contributing to the revenue stream along with the new build ships.  You can see why Safe Bulkers dividend is safe.  Don't forget that the CEO's family owns 60% of the stock in the company.  They have a huge incentive to provide a sustainable dividend.
 
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