Money

How Long Can This 40% Yield Stay Afloat?

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Double-digit yields are hard to find these days. Anything above 20% is nearly impossible. But 40%? That’s like reaching the end of a rainbow, spotting the Loch Ness Monster or buying a penny stock that actually works out. In other words, it doesn’t happen.

But for now, Golden Ocean Group‘s (Nasdaq: GOGL) most recent $0.85 per share quarterly dividend comes out to an annualized 40%.

Can investors in the dry bulk shipping company continue to expect that kind of lofty dividend payout?

Unsurprisingly, free cash flow exploded this year. It had been climbing for the past several years, but the supply chain shortage pushed shipping rates through the roof, leading to higher cash flow.

Free cash flow jumped from $115 million in 2020 to an expected $171 million in 2021. That’s a strong positive. What’s not positive is the payout ratio…

The Bermuda-based company is forecast to pay out $491 million in dividends this year, a stunning 288% payout ratio, or nearly three times as much cash as it took in.

Perhaps it’s making up for past dividend cuts, like the one in 2018 and the two in 2019, and then the complete omission of the dividend in 2020.

Golden Ocean's Dividend Could Make You Seasick

Golden Ocean is having a terrific year. However, the way it’s spending its money on dividends reminds me of an athlete who, after signing their first pro contract, blows the money on cars, houses and jewelry. Paying dividends is a noble thing to do. Paying three times what you make is not.

It’s hard to see this dividend being sustained over the next year or so.

Dividend Safety Rating: D

Dividend Grade Guide

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Have a happy, healthy and prosperous 2022,

Marc

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