The Trade Idea: After last week’s development in OIL’s Quantitative Gravity, I would avo...
This Cash Cow Is Still Mooing
12/18/2007 12:00 am EST
Neil George, editor of Personal Finance, says a beaten-down shipping company still has the stuff to pay fat dividends and post big gains.
“What the hell is going on?”
That’s one of the softer questions we’ve fielded during the last several weeks about our heavy dividend-paying cash cows.
Falling prices are one thing, but big plunge/parabolic recovery/big plunge isn’t the kind of trading pattern a long-term investor wants to see. And that’s especially so for the stocks that make up the foundation of their portfolios.
We could warm up our tap shoes and perform a little dance around the issue, perhaps redirect your attention to the big success we’re still having with [other picks]. Instead, we’re going to make the case for not just holding the Cash Cows but buying more.
We’ve read some of the commentary posted on various Web sites suggesting we must be flat-out stupid to own some of our big dividend payers. But just because the market has sent prices of many of our cows way down doesn’t mean the companies behind them are in trouble.
We see our companies not just continuing to survive, but thriving. Along the way, we’ll not only get paid, we’ll get paid well; take a look at the effective yields for the Cash Cows. Before you sell off your herd, take a look at the cash cows, many of which are still as sprightly as calves.
US Shipping Partners (NYSE: USS) isn’t going out of business. And its distribution isn’t going to be cut. Anyone saying otherwise knows neither the company nor the business of partnerships. (US Shipping transports petroleum products over long distances in company-owned tankers—Editor.)
The latest quarterly report seemed to send the shares down for the count. All the company said was that it was experiencing delays on maintenance because of a shortage of shipyard dry dock space and that some current and pending boats were going on the spot market. Panic ensued.
Making things worse was the fact that, within the framework of partnerships’ hyper-favorable tax treatment, depreciation and other charges would eliminate much of the reported quarterly profit-per share number.
To the uninformed, it looked as though US Shipping was losing money and couldn’t pay dividends. Not until management laid it out a little more clearly did the silliness subside. The dividend is fine—not just for the remainder of 2007, but for all of 2008 and, most likely, well beyond. We’re looking at 45 cents a quarter, at least, for the foreseeable future.
And US Shipping is still cheap; its boats are worth more than the stock. With a global shortage of ships, the worst thing we have to fear is a buyout right now. Buy US Shipping Partners. (It closed Monday above $13—Editor.)
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