Why Golden Ocean Stock Dropped on Tuesday

What happened

Shares of dry bulk shipping company Golden Ocean Group Limited (GOGL 2.16%) are taking on water as markets reopen on Tuesday, down 4.5% as of 11:10 a.m. ET.

There's no news specific to Golden Ocean that's depressing investors today. Rather, the stock seems to be suffering from a generally negative trend in the rates that dry bulk shippers are able to charge for their services.

So what

The Baltic Exchange Dry Index (BDI), which tracks current rates for dry bulk shipping charters, is actually up a few points -- 4.3% -- since markets were last open on Friday. Still, the long-term trend in rates is decidedly downward. Since peaking in May, the BDI is down a disheartening 66.4%, at 1,133 today -- and since its October 2021 peak, the index is down 80%.

You can see why investors in Golden Ocean might be a bit concerned about that, despite the more recent tiny bounce in shipping rates.

Now what

Reporting earnings last week, Golden Ocean struck an optimistic note. It said that, "despite recent weakness in freight rates caused by easing port congestion and the contraction in China's economy," the company is expecting to enjoy "continued healthy returns" as construction of new dry bulk ships slows worldwide and it continues to rake in cash from ships chartered at higher rates in the past.  
 
The biggest things investors should perhaps be worrying about now are not shipping rates but the potential for: (1) rising interest rates to eat into profits (Golden Ocean is carrying $1.2 billion in net debt); or (2) the risk that at some point, management will decide that Golden Ocean's dividend yield -- currently a staggering 36.7%, according to data from S&P Global Market Intelligence -- is perhaps a bit overgenerous and due for a cut.

Even if that does happen, though, chances are good that cash not spent on dividends could be redeployed to paying down debt. Long story short, Golden Ocean doesn't look particularly risky to me at a current valuation of less than three times trailing earnings (or even six times forward earnings).