Monaco-based container shipping giant Costamare (CMRE 0.06%) has a 48-year history of navigating rough economic seas and continuing to perform.
In 2014, its stock took a hit but still weathered the storm of labor contract disruptions that left many shipping companies floundering and resulted in massive pileups at ports worldwide. By 2019, a strong recovery for its fleet helped the stock handily beat the S&P 500 average return (117% versus 28.9% for the year). But not long after dark clouds gathered once more.
As the pandemic struck in early 2020, Costamare's share prices followed the rest of the market and bottomed out, but changes the company made in its operations placed it in a strong position for growth when lockdowns began to ease in the second half of 2021 and the world started moving goods in earnest again. By 2021, Costamare had added transport of dry bulk goods to its ledger, moving into a second major shipping market alongside its lucrative container shipping model.
Now, with many of its earnings locked in for years to come as the world's supply chains try to get back to some level of normalcy, this shipper is positioned for a return to growth. That has implications for its stock performance as well as its dividend (currently yielding 4.05%), making it a new high-yield dividend stock to watch.
NYSE: CMRE
Key Data Points
A history of growth and resilience
Costamare currently operates 76 containerships and 45 dry-bulk cargo vessels on charter throughout the world. The company relies on bookings for charter services up to 3 years in advance, with books typically filling up 12 to 24 months beforehand with contractually backed reservations. Continued growth remains a hallmark of Costamare, as its fleet grows primarily through acquisitions of large vessels either from new construction or purchase agreements with other shipping suppliers. As the ships see service, sometimes for 20 years or more, Costamare pays down and discharges debts from these purchases or sells them as they age to reinvest in and continually replenish the fleet.
During the worst of the early pandemic lockdowns, shipping analysts were concerned about a return to the woes of 2014; containers piled up at docks around the world. The Ever Given mishap that blocked the Suez Canal for almost a week in March 2021 further exacerbated the global transport difficulties. And yet Costamare stock prices continued the rally began at the end of March 2020 and a quick return to 2019's previous upward momentum.
It was during the recovery from the pandemic that Costamare identified the need and potential for dry-bulk shipping to complement its containership charter revenue. In early 2021, it purchased 16 new dry-bulk vessels and began transportation, giving it a strong boost over many competitors in the space. Even major competitors like Navios Maritime Partners and SFL Corp. felt the sting of the early pandemic months and the crush of full docks and labor shortages on their profitability and share prices during this time. Neither of these two showed the resilience of Costamare during this latest crisis, and SFL continues to struggle to regain its former value.
Costamere's ability to manage sector volatility has been key
Volatility sometimes feels like the name of the game in global shipping, and even before 2014 transformed labor costs across the industry, a constant ebb and flow of profitability seemed to follow big shipping companies like the tide itself. While Costamare shares traded at prices near $24 during the heady days before 2014, they dropped strongly as labor contracts expired and renewals at much higher rates became the norm.
Demand for global shipping dictates much of the performance for companies in this sector, but long-term contracts do help ease the revenue volatility. Unfortunately, other factors like fees, fuel, and labor costs can vary greatly between quarters or even month to month. Depreciation is actually one of the biggest operating expenses the company incurs, and varies greatly based on macroeconomic factors. Costamare expects demand to remain high and even increase significantly, and it continues to invest to grow its value for both chartering companies and shareholders.
Image source: Getty Images.
Future-proofing profit helps ensure a high-yield payout
Costamare went public in 2010. Not long after its IPO, it began offering shareholders a dividend and has consistently delivered quarterly dividends and consistently raised them annually ever since. It currently pays out $0.46 per share in dividends annually with the stock trading at around $11.35 a share. Despite lowered share prices and a bigger cut of revenue moving toward labor expenses, Costamare continues to deliver and raise its quarterly dividend, with yields actually averaging closer to 7% over the past decade. The current yield rates may not always indicate this clearly, as share values approach new five-year highs and recede in the ebb and flow of ongoing volatility in connected labor, materials, and goods markets.
Costamare's most recent increase in the dividend raised it 7%, managing to keep pace with inflation. Past dividend hikes have reflected the rate of inflation as well.
Maintaining a high-yield payout without affecting other parts of the business is a hallmark of a good long-term dividend stock. Dividend yields of 4% or greater can sometimes suggest value traps as the heightened yield is more a reflection of a lowering stock price and potential trouble for the company. Costamare has managed its dividend growth well and the current payout ratio is a very sustainable 23%. That suggests further room for dividend growth without affecting operations.
As mentioned before, solid future bookings and reservations are one of Costamare's strengths in this industry. Its most recent earnings report indicates that its ships are fully contracted for the second half of 2022, while 2023 is already 95% booked, and 84% of the days of 2024 are booked. Even 2025 has 58% of its available days booked this far in advance. Between its continued growth in revenue, increases in liquidity, and this revenue already locked in, dividend investors should feel assured of continued high-yield payouts.
Costamare's stock valuation is reasonable
Investors considering buying into Costamare stock for its high-yield dividends with the hope that they last forever should note a few things. The underlying company is solid, positioned to continue dominance in its sector, and capable of pursuing strong growth. It's also resilient. Costamare has shown it can react quickly and effectively to challenges and changes in its industry. Finally, Costamare has seen some volatility in its stock price over the years, but it has shown sustainability in delivering and not downgrading its dividends.
The shipping giant boasts a P/E ratio of 3.1, much lower than competitor SFL Corp. Ltd. at almost 8. According to the July earnings report, the company also saw $60 million in share repurchases, increasing the value of the remaining shares.
Overall, these elements align with this company, making Costamare a stock you could buy and hold forever with an eye on dividend yield as well as continued growth over time.
