Star Bulk Carriers interesting dividend payout
To conserve cash Star Bulk Carriers (SBLK: 2.77 0.00 0.00%) has elected to pay half of the 3rd quarter’s 36ยข in cash and the remainder in company stock. Star Bulk Carriers owns a dozen dry bulk cargo ships which it leases out on long terms contracts. Dry bulk shippers have been hit hard in line with the Baltic Dry Index losing 95% of its value over the last 8 months. Theoretically, the lower spot rates should not affect the revenues of a company like Star Bulk which leased out its ships when rates were much higher and should have steady cash flow.
The problem arises when one of the company’s customers declares bankruptcy and drops the lease as happened in October. A ship that was earning $106,000 per day will now probably earn less than 10% of that amount. For a small company like Star Bulk it would only take another contract cancellation or two to put them into bankruptcy.
So it makes sense to give the shareholders some cash to keep them happy. They bought the stock in the first place to get what was supposed to be a steady, high dividend. Paying half the dividend in stock conserves some cash and the management team is taking their entire dividend payouts in stock to show their belief in the company. I have less faith in management when you take a look at their use of cash earlier in the year. In January the company announced a $50 million stock repurchase plan and they have spent $12.9 million year to date. So far in the 2nd half of 2008 they have purchased almost 1 million shares at an average of almost $8 per share. Now they are issuing over 4 million shares in lieu of cash dividends at a value of $2.30. It looks like they just threw away most of the money spent so far on the stock repurchase plan.
Jeff Matthews has repeatedly pointed out the stock repurchase programs loved by Wall Street analysts often have severe negative long term impact on the companies with buy back programs. I think this is a graphic example.
Note: I do not have a position in SBLK.
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