The shipping industry is in the pits right now. But that hasn't stopped Bermuda-based Ship Finance International
The irony of the situation is that the company did so even after reporting a 44% drop in its first-quarter profit. What's the justification behind this dividend hike?
Lower charter revenues from finance leases pushed total operating revenues down almost 13% this quarter. Net income stood at $32 million this quarter as compared to $56.9 million a year ago. Net cash provided by operating activities declined to $70.1 million this quarter from $132.3 million a year ago. None of this is good.
A closer look at the financial statements shows that in spite of a decline over the years, the company's debt-to-equity ratio still stands at a staggering 238.9%. If I were the CFO of this company amid a lousy industry environment and with tight constraints from an operational standpoint, a dividend hike would probably be the last thing I would consider initiating.
Better days over the horizon?
Ship Finance, which purchases and sells operating vessels, draws revenues from major customers like Frontline
There's no telling when rates for shipping vessels will began moving upward again -- it could happen quite fast, in fact. But until that day comes and until companies like Frontline see better days, Ship Finance will be a sitting duck. That makes the recent dividend hike all the more puzzling. Investors should beware.
The Foolish bottom line
Ship Finance, which has just seen a decline in profits this quarter, doesn't appear that attractive. Yet the dividend was boosted for the fifth consecutive time. Bizarre. Let's wait and watch the company's performance in the coming quarters.