Following my recent articles about Star Bulk Carriers (SBLK) and Safe Bulkers (SB), today I’m writing a piece about Diana Shipping (DSX), a dry bulk carrier earning its income solely from time charters. More specifically, I will provide a critique regarding the newly signed time charter contracts of the company, as a means to evaluate managerial performance. Finally, I will make conclusions as to why I believe investors in Diana Shipping could still benefit from share price appreciation in the near term.
During the last few weeks, the following developments have taken place:
- A new time charter contract for its m / v Newport News Newcastlemax vessel, for $ 23k per day, until minimum July 1 2023. The previous charter rate was $ 18.4k per day, representing a 25% increase.
- Another new time charter contract for its m / v Polymnia Post – Panamax vessel, for $ 24.8k per day, until minimum March 2023. The vessel’s previous charter rate was $ 12.1 per day, representing a 105% increase in the gross charter rate.
- A renewal of its m / v Astarte Kamsarmax vessel time charter contract, until minimum April 15 2023, for $ 21.5k per day. Previously, m / v Astarte was chartered for $ 25k per day, representing a decrease of 14% in the gross charter rate.
- A renewal of its m / v Los Angeles Newcastlemax vessel time charter contract, until minimum January 2023, for $ 26.25k per day. The vessel was previously chartered for $ 14.25k per day, representing an increase of 84% in the gross charter rate.
- A renewal of its m / v Aliki Capesize and Leonidas PC Kamsarmax vessels time charter contracts for $ 24.5k per day, until minimum February and March 2023 respectively. M / v Aliki was previously chartered for $ 20.5k per day, representing a 19.5% increase in gross charter rate, while m / v Leonidas PC was to be delivered to the company in mid – February 2022.
As we can see, the company has improved its time charter rates exceptionally, in almost every case, except for the m / v Astarte. In the table presented below, we can see the current time charter equivalents for dry bulk vessels.
By comparing the time charter rates listed in the table to the recent time charter renewals from the company, we can see that most of them are in line with the current rates. The only outlier is the time charter rate of m / v Astarte, which bears a rate resembling more of a 2-year contract. Looking into these renewals at the time that they were signed, and comparing the new rates with the rates at that time, will provide some meaningful insight.
- The time charter of m / v Astarte was announced at the end of January 2022, when Kamsarmax rates for 1-year contracts were ranging from $ 24k to $ 22.5k per day.
- The time charter for m / v Newport News was penned in the early December 2021, when Capesize rates were at $ 23.5k – $ 25k per day.
- The time charter for m / v Polymnia was inked in mid – January 2022, when Panamaxes were chartered for $ 24k – $ 25k per day.
- The m / v Los Angeles time charter contract was renewed in early February, when time charter rates for Newcastlemaxes were ranging from $ 22k to $ 25k per day.
- Finally, the renewal of m / v Aliki’s charter contract was done when Capesize rates were those indicated in the table listed above.
What I derive by contradicting these evidence, is that Diana Shipping has a management team that leases their vessels in line with current market rates, most of the time. However, there are some mispricings that do not make me feel quite comfortable. In addition, given that Q1 is naturally the weakest quarter in the shipping business, I would expect time charters expiring at that time to get charter contract renewals with a shorter term. Of course, seasonality is embedded into the price to some degree, but to another degree, charter rates with longer terms have a higher level of uncertainty, thus, rates tend to be lower. Therefore, while longer contracts tend to be a risk hedge in times of increased rate volatility, I do not see how this is a similarly effective strategy when the renewal date coincides with BDI’s lows.
Why I still support the “Long” story
I still believe that Diana Shipping is a good investment choice for those looking for exposure in the dry bulk market, but with less volatility than a direct spot market exposure. Longer time charter contracts remove a percentage of downside risk, so it really comes down to someone’s risk tolerance. The company still pays a 10% forward dividend yield, based on their last dividend of $ 0.10 per share. However, I would like to see some clarity regarding the future dividend payments, especially after the OceanPal (OP) spin-off. That is, I’d like to see Diana Shipping follow the example of Star Bulk Carriers or Eagle Bulk Shipping, which have introduced straightforward dividend calculation formulas to their investors. I dare to say that this should be the industry standard.
But apart from that, with rates increasing in high double digit figures, I expect that the $ 14k per day TCE reported by the company for the 9 months ended in September 30 will be much higher, which should definitely impact dividend. On top of that, let’s not forget that the company bought back 3.3 million shares at the price of $ 4.5 per share, which is higher than its current share price. Based on the above, I remain bullish on the company. I believe that Diana Shipping has a place in the portfolios of investors looking for exposure in the dry bulk market, but looking to remove some of the volatility risk associated with the BDI.