Star Bulk Carriers Stock: Blockbuster Acquisition Makes This 7.7%-Yielder a No-Brainer
January 23, 2024
Why SBLK Stock Has Big Potential
It’s safe to say there’s no industry that’s always bullish, which is why it’s important for income hogs to keep a close eye on sectors that are performing well (or are expected to).
Thanks to a bright outlook for the dry bulk shipping industry, now is a wonderful time to take a look at companies like Star Bulk Carriers Corp (NASDAQ:SBLK).
BIMCO, an organization for shipping companies, estimated that cargo demand would increase by up to 3.5% in 2023, up to 1.5% in 2024, and up to two percent in 2025. (Source: “Dry Bulk Shipping Market Overview & Outlook Q4 2023,” BIMCO, November 28, 2023.)
The high prospects for the marine shipping sector are tied to decent global economic growth. The International Monetary Fund (IMF) said it expects global gross domestic product (GDP) to grow by 2.9% in 2024 and by 3.2% in 2025.
That’s good news for Star Bulk Carriers Corp, a marine shipping company I’ve been following for a while.
And for good reason. The company makes a lot of money, pays reliable, high-yield dividends, and has a low payout ratio. And because of aforementioned industry tailwinds, the long-term outlook for Star Bulk Carriers is solid.
The Athens, Greece-based company is one of the largest dry bulk shipping firms listed on the Nasdaq. Star Bulk Carriers’ diverse shipping fleet consists of 124 bulk carriers ranging from Supramax to Newcastlemax. (Source: “Starbulk at a Glance,” Star Bulk Carriers Corp, last accessed January 17, 2024.)
With an average age of 10.7 years, the company’s vessels give it exposure to all types of cargoes and trade routes. The company ships major bulk commodities—including grain, iron ore, and minerals—and minor bulk commodities—including bauxite, fertilizer, and steel products. (Source: “Star Bulk and Eagle Bulk Shipping to Combine, Creating a Global Leader in Dry Bulk Shipping,” Star Bulk Carriers Corp, December 11, 2023.)
Merger to Create Largest U.S.-Listed Dry Bulk Shipping Company
In an effort to make an even bigger splash in the global dry bulk shipping industry, in December 2023, Star Bulk Carriers announced plans to acquire Eagle Bulk Shipping Inc (NYSE:EGLE), one of the world’s largest owner-operators in the midsize dry bulk vessel segment. (Source: Ibid.)
The acquisition deal is expected to close in the first half of 2024.
Star Bulk Carriers’ merger with Eagle Bulk Shipping will create the largest U.S.-listed dry bulk shipping company. The combined company, with a fleet of 169 ships, is expected to have liquidity of nearly $420.0 million and generate at least $50.0 million in annual cost and revenue synergies within 12 to 18 months of the deal closing.
“We will leverage both companies’ technical and commercial fleet management capabilities to optimize performance, deliver on our health, safety, and environmental objectives and maximize earnings potential,” said Petros Pappas, the CEO of Star Bulk Carriers Corp. (Source: Ibid.)
Q3 TCE Rates Exceeded Baltic Indices by 28.6%
For the third quarter of 2023, Star Bulk Carriers reported net income of $43.7 million, or $0.45 per share, and adjusted net income of $33.1 million, or $0.34 per share. (Source: “Star Bulk Carriers Corp. Reports Net Profit of $43.7 Million for the Third Quarter of 2023,” Star Bulk Carriers Corp, November 13, 2023.)
It also reported earnings before interest, taxes, depreciation, and amortization (EBITDA) of $96.9 million.
The company reported third-quarter daily time charter equivalent (TCE) rates of $15,068 per vessel, exceeding the fleet-weighted average Baltic indices by 28.6%.
Coverage for the fourth quarter was, as of November 13, about 65% of the available days at a daily TCE rate of about $17,200 per vessel.
Star Bulk ended the third quarter of 2023 with cash and cash equivalents of $300.3 million, compared to $284.3 million at the end of 2022.
Star Bulk Carriers Corp Repurchased 20 Million Shares
From September through December 2023, Star Bulk Carriers repurchased 20 million of its own common shares from Oaktree Dry Bulk Holdings LLC at an average price of $19.00 per share. (Sources: “Star Bulk Successfully Completes the Second Repurchase of 10 Million of Its Common Shares From Oaktree,” Star Bulk Carriers Corp, December 1, 2023.)
The purchases were mainly funded by sales proceeds from vessels sold at higher prices during the second half of 2023. (Source: “Financial Results: Q3 2023,” Star Bulk Carriers Corp, last accessed January 17, 2024.)
Note that, at the time, Star Bulk Carriers’ shares were trading at a discount.
Management said it believed that the repurchases were immediately accretive to net asset value (NAV) per share, earnings per share (EPS), and dividends per share (DPS). (Source: “Star Bulk Carriers Corp. (NASDAQ:SBLK) Q3 2023 Earnings Call Transcript,” Insider Monkey, November 15, 2023.)
During the third quarter of 2023, the company sold 678,282 of its own shares through its at-the-market (ATM) program, at an average price of $19.81 per share, which brought in gross proceeds of $13.4 million.
Q3 Dividend of $0.22 Per Share
Star Bulk Carriers’ continued high cash generation led its board to declare dividends for the third quarter of 2023 of $0.22 per share. Those dividends were paid to shareholders in December. (Source: “Dividend History Common Shares,” Star Bulk Carriers Corp, last accessed January 17, 2024.)
That works out to a yield of 7.67% (as of this writing), which is more than double the current U.S. inflation rate. That dividend was the company’s 11th consecutive quarterly distribution.
Commenting on the company’s dividends, Pappas said, “With a well-capitalized balance sheet, we aim to continue delivering strong cash returns to shareholders while investing in emission reduction technologies as we continue to pursue growth over the long term.” (Star Bulk Carriers Corp, December 11, 2023, op. cit.)
Dividends aren’t the only thing that have been rewarding Star Bulk Carriers Corp shareholders. Star Bulk Carriers stock has been providing capital appreciation over the short and long terms.
Since bottoming during the 2020 COVID-19 crisis, SBLK stock has rallied by an impressive 739%. Star Bulk Carriers stock has also gone up by 19% over the last six months and 5.1% over the last year (as of this writing).
Thanks to shipping industry tailwinds and Star Bulk Carrier’s recent merger, the outlook for SBLK stock is bullish. Analysts have provided an average 12-month share-price estimate of $24.50 and a high 12-month share-price estimate of $25.00. This points to potential gains in the range of 19.6% to 22.07%.
Chart courtesy of StockCharts.com
The Lowdown on Star Bulk Carriers Stock
Star Bulk Carriers Corp is a great marine shipping company that pays high-yield dividends. The company reported solid third-quarter 2023 results, which included high net income and EBITDA.
With fears of a recession fading, a robust global demand for dry bulk shipping, and Star Bulk Carriers’ blockbuster acquisition of Eagle Bulk Shipping, the outlook for SBLK stock’s share price and high-yield dividends is bright.
