Seaspan Corporation (SSW, Financial), which owns and operates the containerships, is an excellent high dividend yield stock to consider for 2015 and beyond. At a current stock price of $18.67, the stock provides a healthy dividend payout of $1.38 and a dividend yield of 7.5%. This article discusses the reasons to believe that the dividend payout is sustainable and the sock is worth considering at current levels.
As of 4Q14, Seaspan Corporation had a fleet of 77 vessels and the company achieved vessel utilization of 98.7% and 99.0% for the quarter and year ended December 31, 2014. I mention the number of vessels and utilization at the onset as these vessels are contracted on long-term lease with solid counterparties. As a result, the fleet utilization is robust as indicated for 4Q14 and for 2014.
This factor is closely linked to the reason to believe that dividends will sustain for Seaspan Corporation through 2015. As of December 2014, the company had total committed revenue of $6.4 billion and this provides the company with a very strong revenue and cash flow visibility for the coming years. Considering a revenue of $717 million for 2014, a revenue backlog of $6.4 billion means that the revenue visibility is 8.9 years as of FY14.
Therefore, not only for 2015, the company’s dividend looks secure for the next few years. A clear idea of a sound management and the impact of revenue visibility is evident from the fact that the company’s cumulative vessel utilization since its initial public offering in August 2005 through December 31, 2014 was approximately 99.0% or 99.3% if the impact of off-charter days is excluded. Therefore, the vessel utilization has sustained at almost 100% in the last 10 years and the revenue visibility ensures that the utilization record is maintained.
From a financial flexibility perspective, Seaspan Corporation has a cash position of $202 million as of December 2014. While the company’s debt stands at nearly $3.3 billion, debt servicing is not a concern considering the stable inflow of cash from long-term leases.
For the year ended December 2014, Seaspan Corporation generated $343 million in operating cash flow as compared to $328 million in operating cash flow for the year ended December 2013. This indicates that the OCF trend is also stable and gradually trending higher with the addition of new vessels in the company’s fleet. Therefore, as long as OCF remains stable backed by long-term contracts, debt servicing will not be a concern and dividend payout will also not be a matter of concern.
The important point here is that the long-term lease contracts are with strong clients such as Kawasaki Kisen Kaisha, Mitsui O.S.K. Lines, Cosco Container Lines and China Shipping Container Lines (Asia). With these companies having strong fundamentals, it is entirely likely that stable cash inflow will continue.
I also believe that the company’s operating cash flow will improve further in 2015 with the company expecting the delivery of eight vessels during the year. All these vessels are already on long-term lease with strong counterparties and the incremental cash flows will come as these vessels are deployed in operation during the year. With long-term contracts, these vessels will also be funded easily through debt. Funding would have been an issue only if these vessels were not already contracted.
In conclusion, considering the robust revenue visibility, strong financials, stable operating cash flow and a pipeline of new vessels to be delivered in 2015, Seaspan Corporation is certainly a good stock to consider for investors who are looking for high dividend yield stocks for their portfolio.
