The stock prices of most dry shippers are sailing to heights not seen in months or even years. As such, they may be more tempted than ever to dilute common shareholders with equity raises -- announcements that often result in short-term price crashes. While it's difficult to predict when any one dry shipper will hit the market with a raise, studying the dilution history of bigger names like Diana Shipping (DSX 1.03%), DryShips (DRYS), Safe Bulkers (NYSE: SB), and Baltic Trading Limited (NYSE: BALT) can give you some predicting power.
Double-edge sword
It's important to note that dilution isn't necessarily a bad thing. A nimble management uses the dilution to successfully build more shareholder value than it hurts. Employing the extra money to acquire highly profitable ships, pay down burdensome debt, etc. may actually do shareholders a favor.
We're here only to judge which dry shippers ultimately have diluted shareholders the worst, in order to estimate which of them might do so again. Knowing this information can keep you from being completely blindsided by the announcement of a raise. Let's focus on the last three years -- the period of time since the Baltic Dry Index was significantly higher than today.
Diana Shipping
Diana Shipping has been one of the least dilutive dry shippers. In September 2010, it had around 80.7 million shares outstanding. As of the last report, the number was up to 81.4 million, or less than 1% dilution in three years. Based on that, it would seem highly unlikely that Diana Shipping that it would dilute shareholders, except under the most advantageous of circumstances.
DryShips
DryShips has a long history of some really bad dilution; in 2005, for example, it had 30.4 million shares outstanding. Fast forward to Dec. 31, 2010, and that number ballooned up to 369.6 million -- a 1,117% increase.
While that's about as ugly as you can get, DryShips' dilution in the three years since has been much less profound on a percentage basis. As of Sept. 30 of this year, there were 424.8 million shares outstanding, or dilution of just 7% in three years. However, DryShips did sell 5.9 million shares as part of a previously announced equity offering. This brings the dilution to a still-palatable 8.5%, which still suggests DryShips has gotten more shareholder-friendly in the last three years.
Safe Bulkers
Safe Bulkers' dilution has been worse than Diana Shipping and DryShips's, but not as bad as Baltic Trading Limited. Back in Nov. 2010, Safe Bulkers had around 65.9 million shares outstanding. Today it stands at around 83.5 million, including an equity offering just last month for 6.75 million shares. This represents around 27% dilution over three years; that isn't terrible, but investors may want to cautiously watch for more raises from Safe Bulkers.
Baltic Trading Limited
Baltic Trading Limited has one of the ugliest dilution histories over that last three years, going from bad to worse. It had around 22 million shares as of Sept. 30, 2010. Three years later on Sept. 30, 2013, that number had risen to 37.6 million or 71% dilution.
While 71% is bad enough, in November of this year, even after two equity raises earlier this year, Baltic Trading Limited added another 12.65 million shares of dilution, for a total of roughly 50.25 million shares outstanding. Baltic Trading Limited is now up to 128% dilution in just over three years. Consider that a warning sign.
Foolish final thoughts
Be especially cautious of Baltic Trading Limited when it comes to dilution. It has demonstrated that it has no problem aggressively diluting shareholders -- much more so than DryShips, Diana Shipping, or Safe Bulkers over the last three years. Management of Baltic Trading Limited hasn't been shy about dilution, with the stock at much cheaper levels this year, and with the stock price near two-year highs, don't be surprised to see more of it.
