DryShips: Dividend Love

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Thursday, 22 January 2009

It is no secret that I view dividend paying stocks as a 'girl's best friend" - at least for the time being. With volatility still at record levels and the continued significant potential for event risk in the credit and equity from mismanagement or fraud, it is wise for investors to move back into long equity positions with some caution. That said there is any number of dividend paying companies with temptingly low valuations. DryShips, Inc. is a transoceanic carrier of drybulk cargo - think steel, coal and grains. Sales topped the $1.0 billion level in the most recently reported twelve months ending September 2008. Profits have soared in the last two years, making an $0.80 annual dividend possible.
At the current stock price, that provides a yield of 5.25%. During a period of global economic decline many investors might balk at investing in a company dependent upon trade. However, we point out it is trade in consumer goods that get hit first and most deeply by macroeconomic declines.
According to First Call, the 2009 consensus estimate for DryShips does indicate a drop in sales to $963 million, on which analysts estimate earnings of $5.62 per share. This represents a dramatic decline from the current year wherein EPS is likely to top $10.00 per share.
Even at the lower EPS level, the forward PE is 2.3 times at the current price level. That projected EPS level would also be sufficient to sustain the $0.80 per share dividend. DryShips has $329.1 million in cash on its balance sheet. So even if earnings are not as analysts predict, the dividend seems secure for the time being. DRYS shares had soared to $116 per share in May 2008, dropping to an amazing $3.54 by late November 2008.
At the current price level, DRYS shares have only just begun to recover and still present an enticing value to investors with a Steady-Eddy investment strategy. A full complement of options provides a means to manage downside risk - or a cheap way to play the long-side for the more wary.