Shipping is a multi-year (if not decade) cycle. We may have bottomed out but we are no where close to pre-crisis levels. Recovery will take years. The huge in-flow of newbuild vessels coming online within the next 2 years may exacerbate the problem. Throw in the existing problems of banks unwilling to lend, low freight rates and potential double dip recession, the shipping industry isn\'t in a bed of roses at the moment.
Shipping thrives on consumer sentiment. More retail sales, more volume of cargo sent around the world by ships.... So it\'s good news for shipping companies that U.S. consumer sentiment improved in early June to its strongest level in nearly 2-1/2 years. Reasons: better job and credit conditions, a survey released Friday showed. The preliminary June reading on the overall index of consumer sentiment rose to 75.5 from 73.6 at the end of May, according to the Thomson Reuters/University of Michigan\'s Surveys of Consumers. The figure was above the median forecast of 74.5 among economists polled by Reuters. The latest survey also showed consumer intention to buy durable items like cars has not flagged, although government data released earlier Friday showed a 1.7 percent drop in vehicle sales last month.
First Ship Lease Trust has risen in price, likely because of the positive tone of the 3Q results statement. I took a look at some parts of the story and wonder :
1. Operating cashflow has increased but to what extent can FSLT pay dividends out of its cash holding when it has a big debt to service?
2. Isn't FSLT a dividend play? If the dividend yield is strong, the stock price will rise accordingly & vice versa.
FSLT has not paid a dividend since FY2011 but the trust is likely to be able to resume paying for FY14 or at least FY15.
The key question is how much? For FY14, to be declared in a few weeks' time, the payout is lkely to be tiny.
It's the payout for FY15 that is what we should direct our attention to. If FSLT can pay 1-c, the yield would 7.4% (FSLT price currently is 13.6 c) which I consider to be the minimum required for this trust considering its many business challenges/problems.
If it's 1-c, don't forget the trust has historically paid dividends over 4 quarters, so each payout is 0.25 cent. It's not massive and would be of interest mainly to investors investing for income.
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