This High-Yielding Dividend Stock Could Be One to Hold Forever
Monegasque container transport giant costamare (CMRE 0.45%) has a 48 year history of sailing rough economic seas and continues to perform.
In 2014, its stock took a hit, but still weathered the storm of labor contract breaches that left many shipping companies floundering and led to massive pileups in ports around the world. In 2019, a strong recovery in its fleet helped the stock easily beat the S&P500 average return (117% versus 28.9% for the year). But soon after, dark clouds gathered again.
When the pandemic hit in early 2020, Costamare’s stock prices followed the rest of the market and bottomed out, but the company’s changes to its operations put it in a strong growth position when the Lockdowns began to ease in the second half of 2021 and the world started moving goods again in earnest. By 2021, Costamare had added dry bulk cargo shipping to its ledger, moving into a second major shipping market alongside its lucrative container shipping model.
Now, with much of its revenue locked in for years to come as global supply chains attempt to return to some level of normality, this shipper is positioned for a return to growth. This has implications for its stock performance as well as its dividend (which currently yields 4.05%), making it a new high-yielding dividend stock to watch.
A story of growth and resilience
Costamare currently operates 76 container ships and 45 dry bulk vessels on charter worldwide. The company relies on bookings of charter services up to 3 years in advance, with the books typically filling 12-24 months in advance with contract bookings. Continuous growth remains a hallmark of Costamare, as its fleet expands mainly through the acquisition of large vessels from new builds or purchasing agreements with other maritime suppliers. As ships enter service, sometimes for 20 years or more, Costamare repays and discharges the debts of these purchases or sells them as they age to continually reinvest and replenish the fleet.
At the worst of the early pandemic lockdowns, shipping analysts worried about a return to the woes of 2014; containers stacked on docks around the world. The Ever Given accident that blocked the Suez Canal for almost a week in March 2021 further exacerbated global transport difficulties. And yet, Costamare stock prices continued the rally that began at the end of March 2020 and a rapid return to the previous bullish momentum of 2019.
It was during the post-pandemic recovery that Costamare identified the need and potential for dry bulk shipping to supplement its containership charter revenues. In early 2021, it purchased 16 new dry bulk vessels and began shipping, giving it a strong boost over many competitors in the space. Even big competitors like Navios Maritime Partners and SFL Corp. felt the sting of the early months of the pandemic and the crushing of full docks and labor shortages on their profitability and stock prices during this time. Neither of those two have shown Costamare’s resilience in this latest crisis, and SFL continue to struggle to regain their former value.
Costamere’s ability to manage sector volatility has been key
Volatility sometimes seems to be the name of the game in global shipping, and even before 2014 transformed labor costs in the industry, a steady ebb and flow of profitability seemed to follow major shipping companies like the tide itself. While Costamare shares traded at prices close to $24 during the heady days before 2014, they fell sharply as employment contracts expired and renewals at much higher rates became the norm.
Global shipping demand dictates much of the performance of companies in this sector, but long-term contracts help mitigate revenue volatility. Unfortunately, other factors such as fees, fuel, and labor costs can vary significantly from quarter to quarter, or even month to month. Depreciation is actually one of the largest operating expenses of any business and varies widely based on macroeconomic factors. Costamare expects demand to remain high and even grow significantly, and continues to invest to increase its value for charter companies and shareholders.
Time-tested profit helps ensure high-yield payout
Costamare went public in 2010. Shortly after its IPO, it began offering a dividend to its shareholders and has always paid quarterly dividends and has steadily increased them every year since. It currently pays $0.46 per share in dividends per year, with the stock trading at around $11.35 per share. Despite falling share prices and a greater reduction in revenue towards labor expenses, Costamare continues to deliver and grow its quarterly dividend, with yields averaging closer to 7% over the course of the year. last decade. Current yields don’t always make this clear, as equity values approach new five-year highs and retreat in the ebb and flow of continued volatility in the labor, materials and connected goods markets.
Costamare’s latest dividend increase pushed it up 7%, managing to keep pace with inflation. Past increases in dividends have also reflected the rate of inflation.
Maintaining a high yield payout without affecting other parts of the business is the hallmark of a good long-term dividend stock. Dividend yields of 4% or more can sometimes suggest value traps, as the increased yield is more a reflection of a decline in the stock price and potential problems for the company. Costamare has managed its dividend growth well and the current payout ratio is 23%, very sustainable. This suggests more room for dividend growth without affecting operations.
As mentioned earlier, strong future bookings are one of Costamare’s strengths in this industry. Its latest earnings report says its ships are fully contracted for the second half of 2022, while 2023 is already 95% booked and 84% of the days in 2024 are booked. Even 2025 has 58% of its available days booked that far in advance. Between its continued revenue growth, increased cash flow, and those already locked-in earnings, dividend investors should feel assured of continued high-yield payouts.
The valuation of Costamare shares is reasonable
Investors considering buying Costamare stock for its high-yielding dividends in hopes that it lasts forever should note a few things. The underlying company is strong, positioned to continue to lead its industry and capable of continued strong growth. It is also resistant. Costamare has shown that he can react quickly and effectively to challenges and changes in his industry. Finally, Costamare has experienced some volatility in its share price over the years, but it has demonstrated sustainability by paying and not degrading its dividends.
The shipping giant has a P/E ratio of 3.1, well below that of its competitor SFL Corp. ltd. to nearly 8. According to the July earnings report, the company also recorded $60 million in share buybacks, increasing the value of the remaining shares.
Overall, these elements align with this company, making Costamare a stock you can buy and hold forever with an eye to dividend yield as well as continued growth over time.