Safe Bulkers Preferred Shares Priced At 8%

Last Wednesday I wrote an article about the epidemic, more like trend to be exact, of Greek shipping companies issuing preferred shares to boost their equity capital.  As per my projection, Safe Bulkers (SB) announced the pricing of its preferred shares after the closing of markets on Thursday.

SB issued a total of 1,600,000 preferred shares at $25 per share.  The shares pay an annual dividend of 8%, the same dividend rate like compatriot Tsakos Energy Navigation (TNP) that had priced its securities almost a month ago.

CEO Polys Hajioannou bought 800,000 shares or 50% of total shares issued, aligning once more his interests with those of shareholders, common and preferred.

I have already analyzed in my previous article the main terms of these hybrid securities and motivation behind their issuance.  The important thing to remember is that the preferred shares are very likely to be called, or redeemed, at the company’s discretion, as early as three years after payment of the first dividend.  All going well, an investor stands to earn an annual dividend of 8% for the next three to five years and get his/her money back at the end of the period.

How does this dividend yield compare with the current yield on the common shares?  The current annualized dividend rate is $0.20 per share or approximately 4%.  (SB closed at $5.01 on Thursday).  Unlike the preferred shares, the dividend on the common shares is not guaranteed.  But common shareholders have a residual claim on the company’s assets and stand to benefit if freight markets improve over the next three years.  They also stand to lose money if the stock price falls under $5.01, and have a junior claim if things go awry (not that I think or wish they will).

Potential investors might wish to consider allocating their dollars in both securities.  Overall, it is a very nice dilemma to have, because I like the company’s management and especially its low cost structure.

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