A strong rally in the dry bulk shipping sector over the past several months has led many investors to companies like DryShips Inc. (DRYS), Safe Bulkers Inc. (NYSE: SB), and Diana Shipping Inc. (DSX -0.66%). But before you hop on board, don't ignore one very big warning sign. Some shipping CEOs' shifty dealings are funneling millions of shareholder dollars into their own private businesses.
In 2012 alone, the CEO of Safe Bulkers steered $7.7 million from the company's coffers into several companies he owns. DryShips booked $7.6 million in related-party transactions in the same year, while Diana Shipping currently pays $200,000 a month to companies its founder also runs. But even while all three pay out such generous amounts to their CEOs, these companies all posted negative free cash flow in 2012.
In the video below, Motley Fool analyst Blake Bos explains exactly what a related party transaction is, what kinds of transactions are taking place at the companies listed above, and whether investors should care about them.
