I want to get us back into a big winner within the intermodal container ship sector — ZIM Integrated Shipping Services (ZIM), suggests Bryan Perry, editor of Cash Machine.
As spot rate and charter rate prices for shipping finished goods around the world have soared and remain elevated, companies such as ZIM have seized the opportunity to lock in multi-year contracts that are historic for this industry.
ZIM Integrated Shipping Services is a specialized global shipping liner, which profits by shipping containerized cargoes around the world, particularly on routes that are less popular with the larger shipping line operators. ZIM is the 11th-largest container shipping liner in the world and is headquartered in Israel.
Even though there is huge political pressure to tout the easing of supply chain bottlenecks, hard evidence would suggest otherwise. Global freight rates usually peak before November, when the time has passed to ship goods for the holiday season. Then, demand softens into late spring before it picks back up again in the summer months.
ZIM’s model is primarily asset-light, meaning that the company leases the entirety of its fleet and a large portion of its container boxes. Since ZIM controls almost all of its ships through leases with staggered quarterly expirations, they can be nimble operators and add new vessels if market conditions firm up, or they can allow leases to expire and roll off if market conditions soften — again, quarter by quarter.
This year is proving to be one where seasonality is not as much of a factor. Despite a record day rate of $11,109 set back in September, there has not been much of a decline in rates occurring heading into the lower-demand winter months. The current freight rate of $9.430 is only about 15% off the all-time high, whereas prices usually decline by 40-50% this time of year.
2022 is shaping up to what will be another banner year for ZIM and the container shipping industry as a whole. ZIM is forecast to earn $36 per share this year and has raised its total dividend payout to $19.50 per share, implying a yield of 27.4%.
Shipping stocks are volatile, and that is why this recommendation belongs in the Extreme Income Portfolio. We initially bought ZIM back in December 2021 at just under $49 and sold it in early March for $85, right before it paid out a $17 dividend. Since a foreign tax of 25% has to be applied, we would have netted an after-tax payment of $12.75.
The stock topped out at $91.23 and has traded back down to its 50-day moving average. This is where I want to add the stock back to our holdings. Global freight rates are volatile, so understand that if conditions soften for material reasons, I’ll be quick to jump ship. Buy ZIM Integrated Shipping Services under $72.
