A strong rally in the dry bulk shipping sector over the past several months has led many investors to companies such as Diana Shipping (NYSE:DSX). But before you hop on board, don't ignore one very big warning sign: Several related-party transactions are funneling millions of shareholder dollars into businesses privately owned by Diana Shipping's CEO.

Total fees paid to the CEO's two side businesses, Diana Enterprises and Altair Travel Services, were $5.4 million in 2012, a 68% increase since 2010. This is all occurring while revenues at the company have declined 19% during the same time period. To add fuel to the fire, 2012 executive compensation was $4.4 million in 2012. Long story short: While the shareholders aren't doing so well, the CEO is raking in millions.  

In the following video, Motley Fool analyst Blake Bos explains what a related-party transaction is, what kinds of transactions are taking place at Diana Shipping, and whether investors should care about them.

 

Blake Bos and The Motley Fool have no position in any of the stocks mentioned. 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.