This Chart Tells You Which Dry Shipper Will Survive

Those investing in dry shipping companies have been waiting, and waiting, and waiting for a turnaround in the shipping industry. The shipping headwinds have beaten back any substantial recovery, with a lack of shipping demand during the global economic downturn, and new ships ordered during the boom adding extra supply during the glut in demand. An investment in dry shipping so far has been a call on just which company can survive the storm for when shipping finally does recover, which many are predicting will be very soon.

For two of the major shippers, DryShips (NASDAQ: DRYS  )  and Diana Shipping  (NYSE: DSX  ) , one chart demonstrates which company will make it not only as the current clouds part, but also through the next rough economic weather to hit the industry.

Diana Shipping and DryShips' debt

DRYS Total Long Term Debt (Annual) Chart

DRYS Total Long Term Debt (Annual) data by YCharts.

The most obvious takeaway from this chart is the incredible rise of DryShips' debt as compared to Diana Shipping's. Now, a large portion of this debt is from DryShips' subsidiary, Ocean Rig UDW (NASDAQ: ORIG  ) , of which DryShips owns 78%. But even backing out Ocean Rig's debt of $4.4 billion, DryShips still has $1.1 billion in debt.

Altogether, DryShips' debt load cost $114 million in interest last quarter, up from $57 million a year ago. These interest payments weighed down any chance for DryShips to have a positive income, instead losing $34.5 million this last quarter.

Diana Shipping, on the other hand, paid less than $2 million in interest on its roughly $430 million of debt. 

Management
The above chart not only makes a numerical case for Diana Shipping over DryShips, but investors can make inferences on just how well each company is managed. Diana Shipping held off from excessive borrowing even as interest rates and the cost of borrowing cratered. DryShips, of course, did the opposite. Even with less debt, Diana's fleet has an average age of 6.7 years compared to DryShips' 9.7 years.

DryShip's CEO, George Economou, is not the most shareholder-friendly manager. If you need another chart to demonstrate the case for betting on Diana Shipping's management over DryShips', take a look at this:

DRYS Average Diluted Shares Outstanding (Quarterly) Chart

DRYS Average Diluted Shares Outstanding (Quarterly) data by YCharts.

As DryShips dilutes shares and shareholder value, Diana Shipping has kept a level outstanding share count over the past four years. And in fact, Diana Shipping recently approved up to $100 million in share buybacks. While buybacks don't guarantee a good investment for the company's capital, it is a way to return value to shareholders outside of dividends.

An easy choice
There are a few reasons DryShips would make a better investment over Diana, like its ability to quickly capture a rise in shipping rates by operating on spot prices instead of Diana's contract-based fleet, and its exposure to the oil rig industry. However, for a long-term investment in a sustainable business, history points to Diana Shipping as a better choice.

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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 June 09, 2014, at 11:36 AM, groupersaurus wrote:

    It is as if commentators on DRYS are unable to do the least little bit of research or intentionally try to mislead . You can't say DRYS "debt load cost $114 million in interest last quarter" and be accurate, can you? ORIG's portion of that interest was $86 million.

    Additionally, you say that DRYS "lost" $34.5 million. Well, of that $34.5 million they "lost", $107 million of it was non-cash depreciation. When you have 8 $700 million dollar UDW drilling assets, you have enormous depreciation, even as the assets have retained and some actually increased in value.

  • Report this Comment On June 09, 2014, at 11:44 AM, imacg5 wrote:

    It's been awhile since someone finally wrote an article that separated the DRYS debt from the ORIG debt. Same with revenue. Nicely done.

    Keep in mind though that, on top of the Bank loans, DRYS has a Bond about to roll over, that is also financing. And it all adds up to $31 million in finance and interest expense last quarter. The good thing is that DRYS also has $15 million coming from ORIG this quarter on ORIG's new dividend.

    Also, keep the meter running on the shares outstanding. DRYS has had an ATM secondary offering in place to raise $200 million. The sale of shares should be about half done. I would expect their final shares outstanding to be in the 475 million range.

    These two companies you chose are vastly different in the management styles, so choose wisely. They both have something to offer.

    Also, you may want to look at another chart. One that shows the yearly totals for the transporting of seaborne dry bulk.

    You will see that, although there was a huge drop in the BDI in 2008, there was a very small drop in the dry bulk trade for a year. But then it recovered to a record setting pace ever since.

    The seaborne trade has doubled since 2008. Unfortunately the newly built ships just keep on coming. And while the expected deliveries for 2014 are projected to be less than the rise in demand, the orders for new ships for next year and 2016, are back at very high levels.

    It's not a lack of demand. It's a glut of ships.

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