When it comes to trying to make a second income, I like dividend shares. Of course, there’s the risk that I might make zero money, as dividends aren’t guaranteed. Yet, on occasion, an opportunity comes along that looks very attractive. So, even with the potential risks, here’s a company that I like right now.
Setting a course
I’m talking about Taylor Maritime (LSE:TMIP). It’s a dry bulk shipping company that earns money by owning and chartering out cargo vessels. It buys second-hand vessels at attractive prices and then leases them out on time charters at daily rates. This provides predictable cash flow for the business. In theory, it can also sell older vessels on, using the money to repay debt, finance new purchases, or flip for a capital gain.
On the dividend side, it typically pays out funds quarterly. These have been held at two cents per quarter for several years now, with occasional special dividends added on top. The current yield is 9.25%, considerably above the average yield for both the FTSE 100 and FTSE 250. As for the dividend cover, it sits at 2.0. This means the current earnings per share could cover the latest income amount twice over, which is a great sign.
Why now could be the right time
The stock is down 17% over the past year. In fact, back in April, it hit its lowest level in a decade. When a stock is falling, it’s usually prudent to wait until there are some signs that the share price is stabilising. Over the past eight weeks, it has managed to find a footing, with it actually rallying over this period.
Therefore, it could be that the recent decade lows and subsequent bounce are the perfect time for me to buy. This is from the perspective of hunting for income, as the dividend yield is impacted by the share price. Assuming the dividend per share stays the same, a drop in the share price boosts the dividend yield. So, this move lower has pushed the yield higher.
If the share price keeps increasing from here and the dividend per share grows, it’s unlikely the yield will be as attractive as it is now.
Proceeding with caution
Even though I think this looks like a great idea, there are still risks to be aware of. Rising trade tensions and protectionist stances (such as tariffs in China/US) have disrupted dry bulk trade flows, reducing demand. Also, the market values of second-hand vessels have fallen over the past year, reducing the net asset value of the business’s portfolio.
Both of these influences could continue for the rest of the year, putting pressure on the share price and potentially threatening the dividend. Yet despite this, I still like the overall outlook for the business. On that basis, I’m seriously thinking about adding it to my portfolio.
