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Genco Shipping & Trading Limited (NYSE:GNK) has announced that it will be increasing its dividend from last year's comparable payment on the 25th of November to $0.40. Despite this raise, the dividend yield of 4.9% is only a modest boost to shareholder returns.
View our latest analysis for Genco Shipping & Trading
Genco Shipping & Trading's Projected Earnings Seem Likely To Cover Future Distributions
If it is predictable over a long period, even low dividend yields can be attractive. Before making this announcement, the company's dividend was higher than its profits, and made up 88% of cash flows. While the cash payout ratio isn't necessarily a cause for concern, the company is probably focusing more on returning cash to shareholders than growing the business.
Earnings per share is forecast to rise by 48.0% over the next year. If recent patterns in the dividend continues, the payout ratio in 12 months could be 87% which is a bit high but can definitely be sustainable.
Genco Shipping & Trading's Dividend Has Lacked Consistency
Genco Shipping & Trading has been paying dividends for a while, but the track record isn't stellar. This suggests that the dividend might not be the most reliable. Since 2019, the annual payment back then was $0.70, compared to the most recent full-year payment of $0.86. This implies that the company grew its distributions at a yearly rate of about 4.2% over that duration. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.
Genco Shipping & Trading's Dividend Might Lack Growth
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that Genco Shipping & Trading has grown earnings per share at 41% per year over the past five years. EPS has been growing well, but Genco Shipping & Trading has been paying out a massive proportion of its earnings, which can make the dividend tough to maintain.
The Dividend Could Prove To Be Unreliable
Overall, we always like to see the dividend being raised, but we don't think Genco Shipping & Trading will make a great income stock. Strong earnings growth means Genco Shipping & Trading has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. We would be a touch cautious of relying on this stock primarily for the dividend income.