PANL - Pangaea Logistics: Dividend Trends Point To A Rising Share Price

2023-06-05 20:50:45 ET

Summary

• Pangaea Logistics Solutions has strong technicals, a low valuation, and improving profitability, making it an attractive buy.
• The company's forward annual dividend yield of 6.53% surpasses its 5-year average yield, demonstrating sustained earnings power.
• Pangaea's low price-to-free cash flow ratio of 2.05 highlights the company's ability to generate significant cash for growth and shareholder rewards.

Intro

Pangaea Logistics Solutions, Ltd. ( PANL ) is a dry-bulk transportation company operating out of Newport in the US. This stock came to our attention because of its excellent valuation metrics and the fact that the company continues to turn a profit. From a technical basis, Pangaea also looks very attractive both from a long & short-term basis. If we first turn to the long-term chart, we see that since printing its lows in 2020, the company has continued its technical pattern of higher lows and higher highs. Furthermore, PANL stock's ascent into its March highs earlier this year had strong momentum behind it, leading us to believe that further higher highs are on the way in Pangaea.

On the daily chart, we see that shares recently broke out above the stock's multi-month trend-line which dates back to those March highs earlier this year. Suffice it to say, we denote Pangaea as a buy here when one incorporates the company's keen valuation, bullish technicals & improving profitability. Speaking of profitability, Pangaea's dividend with respect to how key metrics have been trending can be a very good read on how the stock is faring and the general fundamental strength of the company. Therefore, let's delve into Pangaea's dividend to ascertain its strength and viability for future growth.

Dividend Yield

Pangaea's forward annual payout of $0.40 per share currently equates to a forward dividend yield of 6.53%. This yield surpasses Pangaea's 5-year average dividend yield of 4.9% which is noteworthy. Why? Well as we see on the 5-year chart above (first chart), Pangaea's present share price ($6.13) is well above the stock's average price in this timeframe but the yield as mentioned comes in above average. Normally, it is the other way around in that dividend yields of the value-plays spike when their respective stock prices collapse. Suffice it to say, this is a very good start and demonstrates sustained earnings power in the company.

Dividend Growth

Although Pangaea suspended the dividend in 2020, dividend growth in the stock since fiscal 2021 has been breathtaking, to say the least. In fact, since the first payment in 2021, the quarterly payout has increased by a factor of five which is excellent from a shareholders' standpoint. Why? Because with reported inflation remaining above 5% (real inflation is most likely much higher), elevated dividend growth rates are essential in order to protect one's purchasing power over time.

Free Cash-Flow

Over the past four quarters, Pangaea has generated $114.3 million in operating cash flow and $95.2 million in free cash flow. Furthermore, the cash-flow statement also demonstrates that almost $60 million was added to the balance sheet cash balance over the past four quarters after accounting for debt and dividend payments alike. Pangaea's cash-flow dividend payout ratio (considering the $15.8 million of dividend payments over the past four quarters) comes in at a very low 16.2%.

Therefore, with almost $130 million of cash on the balance sheet, the resources are there to keep on updating the fleet (whilst rewarding shareholders) over time. Over the near term, The CEO stated on the recent Q1 earnings call that this will result in the delivery of a 9-year-old $26+ million dry-bulk vessel later this month. Furthermore, the company continues to expand its terminal network which will open up Pangaea to more distribution channels in the dry-bulk space over time.

Ultra-Low Valuation

We alluded to Pangaea's excellent valuation earlier and the value of the company's free cash flow is where Pangaea really stands out. Given the number of shares outstanding at present comes in at 46.47 million, if we divide this figure into Pangaea 's trailing free cash flow ($95.2 million), we get a price-to-free cash flow ratio of 2.05. This is an extremely low multiple and demonstrates how cheap Pangaea's free cash flow is in general (For every $1 invested in the company, Pangaea is currently generating $2+ of free cash flow all things remaining equal).

Conclusion

To sum up, we reiterate the point that 'free cash flow' is the most important financial metric in investing. The reason being is that Pangaea can use this cash to improve its position (by growing the asset base over time) as well as reward shareholders. This is perfectly evident on the balance sheet where shareholder equity continues to grow and acquisitions continue to be the order of the day. We look forward to continued coverage.

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