I'm Putting Real Money on Seaspan

Tomorrow my Special Situations portfolio will buy shares of Seaspan (NYSE: SSW  ) , a growing containership company that pays a huge and increasing dividend. I've purchased shares before in this portfolio and I own them in my personal account as well. I think the market is vastly underestimating what this company can do, and I'm looking to take advantage of that. Motley Fool Hidden Gems has made a killing on this stock, and I'm adding more while it looks cheap.

What's changed?
In my original write-up I explained what I liked about Seaspan -- namely, its "progressive" dividend policy that has the potential to double shares or more. The company has built out a fleet of containerships on long-term contracts and then pays out the dividends to investors.

So what's changed at Seaspan since I bought last year? 

Well, the company has rapidly expanded cash available to common stockholders. In the second quarter, cash available for distribution was $76.4 million -- an increase of nearly 43% from the year-ago period. If we take that as an annualized run-rate, Seaspan should generate nearly $306 million.

Contrast that against its annual dividend of $1 per share on 63 million shares, for a $63 million total payout. So Seaspan is paying out just 20% of its distributable cash flow. I expect that to increase quickly, given management's promise of a progressive dividend payout and some high insider ownership.

The company announced an increase in its dividend in late February when it announced annual results. I expect a similar occurrence in February 2013. A 40% payout would double the dividend -- and hopefully the stock -- and still be a reasonably safe payout ratio.

But there's more to love about this company.

Insider buying
Seaspan has opportunistically repurchased shares, one move that I love to see. In the last six months, the company has bought nearly $170 million of its own shares. That's huge for a company with a market cap of just $1 billion. I'd love to see another opportunistic tender offer that we saw earlier this year.

Plus we have had some new insider buying recently. Tiger Group Investments owns 8.2% of shares after adding nearly 107,000 shares in the $16 range to its stake of nearly 5 million stubs. Tiger's chairman Graham Porter co-founded Seaspan and continues to sit on its board, so he probably knows something about how Seaspan is performing.

With all these interesting and positive developments, my Special Situations portfolio will buy $1,000 of Seaspan shares tomorrow.

Interested in Seaspan or have another stock to share? Join me on my discussion board and follow me on Twitter (@TMFRoyal).

Jim Royal, Ph.D., owns shares of Seaspan. The Motley Fool owns shares of Seaspan. Motley Fool newsletter services have recommended writing covered calls on Seaspan. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (5) | Recommend This Article (14)

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 October 04, 2012, at 11:38 AM, ddammerman wrote:

    I have a difficult time with this stock. I have been long on both the common and the preferred "C" issue for close to two years now.

    The preferred has behaved pretty much in-line with expectations. The common has been a wild and volatile ride.

    It had nice spikes in Feb-Mar '12 and again in Jun-Jul '12, but then sagged again after each spike. Since it is a Chinese company, I rarely find any news to help me understand the volatility.

    I agree that their dividend policy seems progressive, sustainable, and attractive. I still wonder about the whipsaw share-price activity though.

  • Report this Comment On October 04, 2012, at 9:44 PM, TMFTypeoh wrote:

    Hey Jim,

    Great article, and I'm in 100% agreement with you. SSW has become my largest position, and I look forward to years of dividend checks raining down on us.

    Brian

  • Report this Comment On October 04, 2012, at 9:49 PM, TMFRoyal wrote:

    Hi, ddammerman,

    I wouldn't really call Seaspan a Chinese company, though it has a base there. The volatility is largely a function of the underlying shipping market and the global economy. Shippin operators tend to have little discipline, causing rates to fluctuate markedly. That's not a problem for Seaspan since it locks in rates for 10 years or so at attractive day rates.

    Jim

  • Report this Comment On October 04, 2012, at 9:50 PM, TMFRoyal wrote:

    Hey, Brian,

    Yeah, I love Seaspan, too. I'm about to buy more in my dividend portfolio (World's Best Dividend Portfolio). I think we're gonna see some great returns over the next couple years.

    Fool on!

    Jim

  • Report this Comment On October 05, 2012, at 7:15 PM, TMFCanuck wrote:

    What is this 'Seaspan' company you speak of?

    Do they sell chicken wings?

    J

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