Wednesday, November 16, 2022

A Stock With a 100% Yield?

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A Stock With a 100% Yield?

Marc Lichtenfeld, Chief Income Strategist, The Oxford Club

Marc Lichtenfeld

It's true...

Zim Integrated Shipping (NYSE: ZIM) has paid out $27.10 in dividends over the past year, and the stock currently trades at around $27.

But can shareholders expect to receive the same amount going forward?

Absolutely not.

Management stated that in the first three quarters of the year, it will pay out 20% to 30% of net income, with a possible step-up to 50% of annual net income in the fourth quarter.

That means next year, a dividend cut is almost a sure thing.

In 2022, Wall Street expects the company to earn $40.07 per share. But for next year, that forecast drops to $8.13, followed by another decline in 2024 to $3.03.

Chart: ZIM Integrated Shipping's Earnings per Share
 

Even if Wall Street gets it very wrong and earnings next year and in 2024 are triple what analysts forecast, the dividend will still come down sharply.

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The Israeli shipping company has paid a dividend for only five quarters, starting at $2 per share in August 2021. It bumped the dividend up to $2.50 the next quarter, then paying a whopping $17 per share in the first quarter of 2022, followed by $2.85 and $4.75 in the next two quarters.

Chart: ZIM Integrated Shipping's Dividend per Share
 

Based on management's dividend policy, it is safe to say that as long as Zim Integrated Shipping is profitable, it will pay a healthy dividend.

But investors should not expect to continue to receive dividends anywhere close to what they did this year.

Dividend Safety Rating: F

Dividend Grade Guide
 

If you have a stock whose dividend safety you'd like me to analyze, leave the ticker in the comments section.

Good investing,

Marc

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