The enormous seagoing vessels that carry commodities such as coal and iron ore across the oceans are floating cash cows for Diana Shipping (NYSE: DSX).

Although operating costs continue to rise steadily, the company has succeeded in raising its charter rates by more than enough to offset the increases. Offering a hefty dividend that's now approaching 8%, the company is passing the buck straight from its clients to investors.

Despite missing fourth-quarter earnings estimates by a couple of pennies, Diana's most recent numbers were very impressive. In this morning's release, the company reported quarterly net income of $36.4 million, an 88% increase over last year's $19.4 million. Full-year net earnings more than doubled from 2006 levels.

This impressive growth came partly from expanding the fleet capacity by almost 30% in 2007. The company also enjoyed a healthy market environment for shipping, which allowed Diana to raise charter rates by nearly 40%.

As if it had already known of the coming global commodities boom, Diana Shipping made a strategic decision several years ago to start building much larger vessels. The 75,000 DWT dry bulk carriers that comprised the fleet before were no shrimps, but the new 175,000 DWT vessels are absolute whales. They can command premium charter rates because of the operating efficiencies they offer to large-scale commodity producers such as BHP Billiton (NYSE: BHP), Constellation Energy (NYSE: CEG), and privately held Cargill.

For investors searching for solid defensive vessels on which to navigate uncertain economic seas, Diana Shipping certainly appears to have all the right safety equipment aboard. Its balance sheet is in solid condition, with surprisingly low debt levels, despite having two more megacarriers under construction.

The downside risk to earnings in the near-term is slight, because the majority of charter contracts run through 2009, and many of the newer vessels are spoken for through 2011 and beyond. Its high dividend is one of the added incentives that have made Diana Shipping a favorite among investors in the Motley Fool CAPS community for some time.

However, investors should realize that as quickly as shipping rates rose during the commodity boom, they could just as easily collapse in a global recession. In the long term, that could cause both earnings and dividend payouts to drop substantially. Everything has been going right for Diana lately, but the ever-changing market makes an investment in Diana far from a sure thing.

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