Ship Finance International's Shares Plunged: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of global shipper Ship Finance International (NYSE: SFL  ) lost steam today, falling as much as 10.3% on fairly heavy volume.

So what: Over the weekend, Financial Times published a study of the shipping industry's dire financial straits. According to the story, nearly every shipper is in violation of loan covenants today and that raises the dual specter of consolidation and potential bankruptcies in the industry.

Now what: So why did Ship Finance fall far faster than DryShips (Nasdaq: DRYS  ) or Teekay (NYSE: TK  ) ? For one, Ship Finance's balance sheet is more leveraged, with total debt 240 times larger than the equity against which it's supposed to be balanced. Lehman Brothers would have killed for leverage like that. I wouldn't necessarily join the very large cohort of short-sellers here, because you just never know when the tide might turn and swamp your shorts, but I'd also advise you to stay clear of that oh-so-tempting 16% dividend payout. If something looks too good to be true, it probably is.

Interested in more info about Ship Finance International? Click here to add it to My Watchlist.

Fool contributor Anders Bylund holds no position in any of the companies mentioned. We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Check out Anders' holdings and bio, or follow him on Twitter and Google+. We have a disclosure policy.


Read/Post Comments (3) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 12, 2011, at 11:41 PM, VAContrarian wrote:

    Not a very intelligent article as it ignores current information which should have been readily available to the writer. The dividend is/willl be covered by earnings. It is not a 16% dividend. Due to the restructuring of Frontiline, the dividend in the future will be reduced to .25 per quarter so the dividend is more reasonable while waiting for the shipping market to recover. It's ships are on long term leases and each are financed to be profitibable based on the lease rates and the loan rates. They are not as exposed to spot rates as many pure shipping firms. It is designed to be a shipping finance company.

  • Report this Comment On December 13, 2011, at 10:37 AM, scraft2 wrote:

    Above comment - good point. The writer would do well to read SFL's own press releases. http://www.shipfinance.bm/index.php?id=462&pressrelease=...

  • Report this Comment On December 14, 2011, at 1:00 AM, Lordrobot wrote:

    Idiotic article... seems to me a lot of these shipping articles are just repeat superficial idiocy. SFL is a small company. It was X-div just days ago so the div. flippers sell these the next several days. You may note that the stock was up in the early part of the day before the hedges started grumbling over no QEIII.

    In spite of the talk of a second recession, the Fed report indicated increased economic strength. China will ad stimulus and if we ever get obama out of the way of oil and pipelines, then the oil business will pick up.

    There is no question that fro will now survive and the leases will continue as will the profit sharing. SFL is undoubtedly along with NAT, two of the best seaborne companies around. So as Graham would say, economies may change but value investing never changes.

    One other reason for the sell off in shipping is the idiocy of mutual fund window dressing. They sell all stocks that have not preformed for the year or are down. This year they are selling virtually all their stocks regardless of upside potential.

    SFL has a great balance sheet, small float and good stead long term dividend. I regard it as a strong buy. You have to buy stocks when they are cheap. Shipping generally is cheap but it is crucial in any mass recovery. Japan's purchases of oil for 2012 represent a global increase of 3% which is enough to float all tankers to profitability.

    Its true that the US businesses will not grow much as long as obama remains. Obamacare is a huge tax and burden to business and many are planning to leave the US unless the Supreme court declares it unconstitutional.

    Business capital is still expensive at 6% even if the fed is giving money to banks at zero percent. Nothing has made its way toward business. So businesses are just tightening up, reducing inventories and planning no expansions. Obama must go; he's simply on the wrong page. He is bad for business.

    I expect 2012 to improve but the shipping stocks have bottomed here and are compelling buys.

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