SUMMARY
- Strongest Q1 results in Star Bulk’s history
- Simple, transparent dividend policy
- Continues to strengthen its balance sheet
- Environmental regulations keeping new orders under control
Hamish Norton, President of Star Bulk Carriers Corp (NASDAQ:SBLK), discussed with Barry Parker of Capital Link TV his thoughts on the dry bulk market, Star Bulk’s 1Q22 achievements, dividend policy and capital allocation strategy.
The full interview, whose main points can be found in the below video as part of Capital Link TV.
Star Bulk Optimistic about the Dry Bulk Market
First half of 2022 trade volumes were affected by the Indonesian export ban on coal, China’s Winter Olympics and zero Covid policy, poor weather conditions in Brazil, and the war in Ukraine. Nevertheless, dry bulk rates remained high in a rather slow commodity flow environment which indicates that the fleet is quite well balanced. In terms of the outlook of the dry bulk shipping market, Star Bulk does not believe that the Forward Freight Agreement curve is a reliable predictor of the market. Star Bulk remains very optimistic about the dry bulk market given the best fleet supply picture in decades with the historically low vessel order book and with the upcoming environmental regulations further suppressing orders and navigation speeds.
The Company believes that we are still in the early stages of covid recovery in China and there is a lot of restocking that needs to take place among major importers of dry bulk. China has not been a major factor in dry bulk movement in the first half of the year, yet rates have been strong. As China reopens and the steel industry returns to growth Star Bulk believes that it will have a significant positive impact on rates.
1Q 2022 Performance
Star Bulk reported very strong 1Q 2022 financial results during the traditionally weak first quarter of the year reporting the highest first-quarter profit in the company’s history. Star Bulk’s Board of Directors approved a dividend of $1.65 per share and over the last four quarters, Star Bulk has distributed a dividend of $5.60 per share to its shareholders.
Fleet Renewal and Expansion
Over the last three years, Star Bulk has added 58 vessels in eight small M&A transactions using shares at or above NAV to buy fleets priced attractively relative to Star Bulk’s share price. Star Bulk was able to do this and increase its market cap, public float, and liquidity by a significant amount making it more attractive to institutional investors. When looking at future fleet growth Star Bulk intends to protect the dividend through the process of growth. To this effect, Star Bulk does not intend to use cash that it would otherwise pay out as dividends but rather try to continue to use shares for acquiring vessels when this would be accretive to shareholders.
Capital Allocation Supportive of Dividend Policy
Star Bulk’s dividend policy is to distribute all the cash earned from operations that are on Star Bulk’s balance sheet at the end of each quarter to the extent that it exceeds $2.1 million per ship and given 128 vessels this is $269 million. Star Bulk distributes all cash from operations after debt amortization and working capital and is amortizing $200 million in debt per year. The company intends to protect its dividend and not use cash from operations to buy back shares. Instead, if Star Bulk’s share price is particularly attractive, the Company would consider selling an older vessel and use cash proceeds to buy back shares. At the same time if the share price is high, it might look to sell shares to buy vessels to benefit shareholders and will look to reduce leverage at the same time.
Capital Link is the investor relations advisor to Star Bulk Carriers. This content is for informational purposes only and is not intended to be investing advice.
