Is Safe Bulkers still a high dividend stock buy after the public offering of 5 million new shares?

Safe Bulkers (SB) announced yesterday that they are offering 5 million shares for sale to the public for ship purchases and repayment of debt.  The total offer could increase the number of total shares from 65.88 million to 71.63 million (5 m for the offer and 750k for the underwriters).  This is a 8.7% increase in the number of shares.

Prior to the public offering announcement Safe Bulkers was trading for around $9.26.  After the announcement the price dropped to $8.32 this morning (-10.15%).  The company is making the offering at a price of $8.40.  This will bring in an additional $42 million to the company’s coffers.

Is Safe Bulkers still an excellent high dividend stock to buy?  Yes, its high dividend is still safe, it has a 5 year average earning power of $1.50 per share, and its balance sheet is strong.

The company has been paying a quarterly dividend of $0.15 per share.  A $0.60 annual dividend is easily affordable.  SB’s current dividend yield is 7.2% ($0.60/$8.32).  The company’s 5 year average earnings were $1.50 (this excludes gains from ship sales and includes the new shares being offered).  Its dividend payout ratio is less than 50%.  No problem.

I’d like to examine Safe Bulkers earning power adjusted for these new shares and also excluding the gains from ship sales in 2006, 2007, and 2010.  These numbers can be found or calculated from the company’s latest annual report for 2010.

                        Net inc. avail

            EPS     (- ship sales)    Adj. EPS

2006    $1.78   $60.209 M       $0.84

2007    $3.84   $96.840 M       $1.35

2008    $2.19   $119.211 M     $1.66

2009    $3.03   $165.41 M       $2.31

2010    $1.73   $94.448 M       $1.32

Safe Bulkers has an adjusted 5 year average EPS of $1.50 (excluding gains from ship sales and including the new offering of shares).  I exclude ship sales because they are not a reoccurring source of revenue.

SB is trading at 5.5 times the 5 year average earnings.  That is still an extreme value.  I look to buy common stocks with high dividends and a market price well below 12 times average earnings.  If SB were valued like many other stocks at 12 times average earnings, then it would sell for $18.00.  It would sell for $30.00 if it were valued at 20 times average earnings, but that where the stock would become a speculative buy.

The public offering does not damage Safe Bulkers balance sheet which was strong before.

I have recommended in the past that Safe Bulkers was a buy below $8.00.  Any significant market correction would take it down below $8.00.  I believe that it is a buy all the way up to $10.00 at its current dividend rate.  The yield would be 6% at $10.00.  But I think you can get it for under $8.00 if you are patient.

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Here is the press release:

 

Apr 12, 2011 09:00 ET

Safe Bulkers, Inc. Announces Pricing of Its Public Offering of Common Stock

ATHENS, GREECE--(Marketwire - April 12, 2011) - Safe Bulkers, Inc. (the "Company") (NYSE: SB), an international provider of marine drybulk transportation services, announced today that its public offering of 5,000,000 shares of common stock (the "Public Offering") was priced at $8.40 per share. The gross proceeds from the Public Offering before the underwriting discount and other offering expenses are expected to be approximately $42 million.

The Company has also granted the underwriters a 30-day option to purchase up to an additional 750,000 shares of the common stock.

The Company plans to use the net proceeds of the Public Offering for vessel acquisitions, capital expenditures and for other general corporate purposes, including repayment of indebtedness.

Morgan Stanley and BofA Merrill Lynch are acting as joint book-running managers and Evercore Partners is acting as co-manager of the Public Offering, which is being made under an effective shelf registration statement.

The Public Offering is being made only by means of a prospectus supplement and accompanying base prospectus. A preliminary prospectus supplement and accompanying base prospectus relating to the Public Offering has been filed with the Securities and Exchange Commission ("SEC") and is available at the SEC's website at http://www.sec.gov. When available, the final prospectus supplement and accompanying base prospectus relating to the Public Offering may be obtained from Morgan Stanley, 180 Varick Street, 2nd Floor, New York, NY 10014, telephone: 1-866-718-1649, Attn: Prospectus Department, email: prospectus@morganstanley.com, or BofA Merrill Lynch, 4 World Financial Center, New York, NY 10080, Attn: Prospectus Department, email: dg.prospectus_requests@baml.com.

The offering is subject to customary closing conditions.

This release shall not constitute an offer to sell, or the solicitation of an offer to buy, nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.

About Safe Bulkers, Inc.

The Company is an international provider of marine drybulk transportation services, transporting bulk cargoes, particularly coal, grain and iron ore, along worldwide shipping routes for some of the world's largest users of such services. The Company's common stock is listed on the NYSE, where it trades under the symbol "SB". The Company maintains its offices at 30-32 Avenue Karamanli, P.O. Box 70837, 16605 Voula, Athens, Greece.

Link to the press release: http://www.marketwire.com/press-release/Safe-Bulkers-Inc-Announces-Pricing-of-Its-Public-Offering-of-Common-Stock-NYSE-SB-1426274.htm