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Is Safe Bulkers a Stock for the Long Term?

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Being able to retire rich, or at least comfortable, is the goal of almost any investor. However, it's much easier said than done. In a recent Wells Fargo survey, respondents between the ages of 50 and 59 said that they had, on average, about $29,000 saved up. With pensions all but gone, and Social Security targeted for cuts in the future, it's hard to count on anyone but yourself. But $29,000 isn't going to cut it for most people, so you've got to get involved in the stock market in order to grow that nest egg. Getting in the game is the easy part; choosing the right stocks is the hard part.

Making prudent decisions
Generally speaking, I look for four traits in a retirement stock:

  1. Valuation: Investors of all ages want to make sure they're not overpaying for a stock, but this matters even more in retirement. Retirees don't have the long time horizon that younger investors have, so it's essential to make sure you don't overpay in the short term.
  2. Dividends: Most retirees need a combination of both growth and income, as they'll be depending more and more on their portfolio to help with everyday expenses. Companies that pay dividends not only offer immediate income, but they've also proven to outperform nonpaying dividend companies over long periods of time.
  3. Growth: Investors love dividends, but everyone wants to see their stocks rise over time. Growth can be as big a part of your portfolio as a steady dividend. It's important to note that you don't need a high-flying stock that's going to shoot to the moon; a company that can grow and outperform the market is hard enough to find, so steady growth is highly covetable.
  4. Low volatility: Retirees want to invest in great growth stocks just as much as anyone else, but they also want to be able to rest well knowing that their portfolio won't be taking them on a roller-coaster ride. At the end of the day, most retirees would rather own a sturdy company that lets them sleep at night than a company that whips up and down with the gyrations of the market.

Although some companies are definitely more geared toward retirees, which companies you choose to invest in will be dictated largely by what you already have in your portfolio. Small, mid, and large caps can all play a role in your investing strategy, so I chose to evaluate all varieties of stocks in this regular series.

So how does Safe Bulkers stack up?
In order to check out the valuation of Safe Bulkers (NYSE: SB  ) , we don't want to look at only its P/E ratio of 4.84. That may seem cheap, but really we don't know without looking at the ratio in historical context. Over the last five years, Safe Bulkers' average P/E ratio has been 3.61, which is less than the current ratio. This suggests that investors may be paying more than they've had to in the past, so it's important to find out why the price tag might be a bit higher today.

Safe Bulkers' dividend is 7.79%. This is tremendous; not only does Safe Bulkers pay a dividend, but it pays more than the average company in the S&P 500.

Next, we want to ensure that Safe Bulkers' stock has the ability to rise over the next five, 10, or 20 years. A company that's growing its net income has the best possible chance to see its share price rise over time. Of course, we can't predict the future, but we can look back to get an idea of how the company has performed in the past in order to try to ensure future earnings growth. Over the past three years, Safe Bulkers has reduced its net income by 6.7% annually. Unfortunately, Safe Bulkers has suffered like many dry shippers have because of the slow economic recovery and the supply glut existing in the market.

One of the best measures of volatility is called beta. Beta measures the impact that the movement of the stock market will have on a particular stock. For instance, a beta of 1.0 signifies that Safe Bulkers will move in tandem with the market; a beta of 2.0 means that the stock will move up twice as much as the general market, and vice versa. In this particular case, Safe Bulkers has a beta of 1.29, which isn't necessarily outrageous, but it's not that low either. This beta falls in the grey area and it really depends on each individual investor to decide how willing they are to take on that added volatility.

Let's look at the competition
We've taken a look at Safe Bulkers, and maybe you think it's passed all the tests, or maybe you just don't feel comfortable with the results. Either way, it's beneficial to see how a company stacks up in its industry because it's just as important to understand a company's competitors as it is to understand that particular company. Here are Safe Bulkers' stats when compared to three of its closest competitors:

Company

Current P/E

Dividend Yield

3-Year Net Income CAGR

1-Year Beta

Safe Bulkers 4.8 7.8% (6.7%) 1.3
Paragon Shipping (NYSE: PRGN  ) 5.6 10.0% 8.9% 1.3
Diana Shipping (NYSE: DSX  ) 6.8 0% (7.1 %) 1.0
Navios Maritime Holdings (NYSE: NM  ) 7.9 4.6% (34.4%) 1.7

Source: Capital IQ, a division of Standard & Poor's.

Each company has traits to like and traits left to be desired. Either way, it's beneficial to look at the industry picture and not just Safe Bulkers in isolation.

Of course, I can't decide for you whether this is the best stock for retirement. It has passed one of the four tests, which isn't all that promising. There might be good qualities about this stock, but I'm pretty sure you could find more bang for your retirement buck.

Interested in adding any of the companies above to your watchlist? Click below to get the latest commentary and analysis.

Jordan DiPietro owns no shares of the companies mentioned. The Fool owns shares of and has created a ratio put spread position on Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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 (2) | Recommend This Article (3)

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 July 28, 2011, at 6:27 PM, whatsthepoint wrote:

    Paragon actually eliminated its dividend entirely last month.

  • Report this Comment On August 04, 2011, at 10:02 AM, chambke7 wrote:

    Is this a joke? Per the above comment, PRGN announced elimination of their dividend several months ago. Makes me question everything in the article. Do some homework.

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Related Tickers

9/19/2014 4:00 PM
SB $7.39 Down -0.26 -3.40%
Safe Bulkers CAPS Rating: ***
DSX $10.25 Up +0.05 +0.49%
Diana Shipping, In… CAPS Rating: ****
NM $7.43 Down -0.33 -4.25%
Navios Maritime Ho… CAPS Rating: ****
PRGN $5.04 Down -0.17 -3.26%
Paragon Shipping I… CAPS Rating: ****

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