The case for Greek shipping company Safe Bulkers

One of the most important features for emerging market investors going long is sound management in a company with a respect for the rights of minority shareholders.  Image courtesy Mike Baird: http://www.flickr.com/people/mikebaird/This can be determined by, among other indicators, the dividend policy of a company, along with the level of insider ownership. Safe Bulkers (SB, quote) is a Greek shipping company with sound management and a strong level of fiduciary responsibility, with appeal for income, growth and value investors.

Insider ownership of over 30% is considered to be very bullish for a stock. The insider ownership level for Safe Bulkers is 64.63%. That the company is not run solely for the benefit of insiders is demonstated by its dividend policy: it pays a dividend of 9.26%. The average dividend yield for a stock on the Standard & Poor’s 500 Index is around 2%.

The soundness of management is manifested by a payout ratio of 47.40%. Historically, the payout ratio for a Standard & Poor’s 500 company has been around 52%. According to Jesper Medigan, manager of Asian income funds for the Mathews mutual fund family, managment such as this reveals respect for minortiy shareholder rights along with prudent stewardship of the finances for the company.

The high dividend yield of Safe Bulkers is very important for emerging market investors. As The Wall Street Journal reports, many prominent investors are attaching a greater emphasis on the income feature of a stock due to the current low interest rate environment. 

Bill Gross, the “bond king” head of Pimco expanded on this:

“Stock P/Es will rest at lower historical norms, and higher stock prices will ultimately depend on tangible earnings growth in the form of increased dividends, not green shoots hope. An investor should remember that a journey to 3% nominal GDP means default/haircuts for assets on the upper end of the risk spectrum, as well as extremely low yielding returns for government and government-guaranteed assets at the bottom end. There is no investment potion for this new environment other than steady income-producing bond and equity investments in companies with strong balance sheets and high dividend yields, as well as selectively chosen emerging market commitments where nominal GDP growth prospects are tilted upward as opposed to gravitating to new lower norms.”

Even more telling for Safe Bulkers’ effective management is a profit margin of 53.13%. A profit margin of 20% is considered to be high for a company; Apple (AAPL, quote) has a profit margin of 25.80% and a dividend yield around 2.65%.

Year to date, Safe Bulkers is up 10.39%. Like many Greek stocks, it was pounded over the last 52 weeks of trading. But as the short float is a miniscule 0.79%, not many are betting on the shipping service company to sink again.

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