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Tuesday, July 27, 2010

Seaspan Raises Dividend 25% -- Room for More as Fleet (& Cash Flow) Keeps Growing into 2011 and 2012

We received good news from Seaspan (SSW) today: the company is raising it's quarterly divided 25% to 12.5 cents/share from 10.0 cents/share for an implied annual dividend of 50 cents. The move is consistent with our prior discussion of positive shipping news and the stable business models of Seaspan and Global Ship Lease (GSL), our other holding in the sector.

Management commentary from Seaspan's press release:
  • Gerry Wang, Chief Executive Officer of Seaspan, stated, "We are pleased to increase our second quarter dividend by 25% due to our increasing cash flows generated through the strength of our business model and the significantly improved container shipping industry fundamentals. We continue our commitment to capitalize on additional growth opportunities that meet our overall strategic criteria as the long-term outlook for the industry is favorable. Over the past 18 months, we have strengthened our financial flexibility and capital structure and look forward to the delivery of 16 remaining newbuilding vessels that will be on long-term charters to COSCO of China and K-Line of Japan."
Per our earlier posts, we expect to win with Seaspan and Global Ship lease two ways: (1) potential multiple expansion as a slow global recovery continues and (2) potential dividend increases in 2011 or 2012 (reinstatement for GSL). Recall that Seaspan's annual payout peaked at $1.90 per share in 2008 prior to the financial crisis and Seaspan's subsequent preferred financing (dilutive but necessary) to fund previously contracted new vessel builds.

With Seaspan, today's news comes ahead of our expected 2011 timing and we note that the current payout remains well below Seaspan's growing stream of distributable cash flow (which we put at approximately $3.00 per share in 2012 on a fully diluted basis). We expect Seaspan will retain a portion of the estimated 2012 cash flow for debt reduction and/or to purchase new ships, yet the cash flow should leave ample cushion for sizable future dividend increases. As this occurs, we continue to believe it is unlikely that Seaspan's equity will remain at an implied 3-4 times 2012E distributable cash flow.

One more thing: Seaspan isn't alone in increasing its payout. Ship Finance International Limited (SFL) announced an increase to 33 cents/share per quarter ($1.32 annualized) on 5/20 from 30 cents/share and, yesterday, Navios Maritime Partners L.P. (NMM) announced a 1.2% increase in cash distributions to 42 cents per unit ($1.68 annualized). Relatively small increases, but increases nonetheless.

Happy investing,

Jeffrey Walkenhorst

Disclosure: long SSW, GSL.

© 2010 Jeffrey Walkenhorst
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