ZIM Integrated Shipping Services (NYSE: ZIM) provides investors with a strong dividend in the shipping industry. The company’s policy is to pay out 20% of its net income each quarter, and 30% to 50% of its net income on an annual basis. ZIM’s last annual dividend came in at $11.4 with a yield of 24.08%. ZIM’s dividend along with its low P/E ratio of 0.99 makes it tempting to add to one’s portfolio, especially if diversifying into another industry is seen as desirable.
ZIM Company Overview
ZIM is one of the smaller players in the shipping industry and operates in areas from Asia to the east coast of the United States and throughout the Asian continent itself. The company is headquartered in Israel.
Something of note about the company’s dividend is that it can be considered safe and sustainable. ZIM has plenty of cash on its balance sheet to pay out investors, which currently stands at $779M. So even in the case of a downturn investors can feel confident that their dividends will be paid out.
Another factor that makes ZIM attractive is its impressive quarterly results. Business in the shipping industry across the board has been booming due to an increase in shipping rate charges, primarily caused by the congestion of the supply chain. For ZIM, the company boosted its revenues by 113% YoY while its operating income grew by 60% to $2.2B.
The booming revenue growth for ZIM will likely slow down as signs that the world economy is about to enter into a recession continue to mount. The consensus from analysts is that next year’s EPS will be considerably lower at 14.19 compared to 44.03 at the time of writing. Furthermore, the company’s revenue of 13.46B is forecasted to shrink to 9.2B in 2023. These could be seen as pessimistic numbers, which are highly predicated on the unpredictable effects of a possible recession.
Risks to ZIM’s Dividend
The main risk that investors face with ZIM is that its dividend will be cut short if the company experiences a reduction in its net income. The IMF has reported that shipping rate charges have begun to ease after consumers unleashed their pent-up demand for durable goods. It is therefore likely that these charges have reached their peak which will affect ZIM’s revenues moving forward.
Another factor is that ZIM is a small company in the shipping industry, and therefore more susceptible to changes in supply and demand for its services. A larger company may have more influence over these factors while ZIM will be forced to ride out the volatility.
The Bottom Line
While shipping prices around the world may have reached their peak, which will undoubtedly affect ZIM’s top and bottom lines, investors can still benefit from the company’s generous dividend that is backed up by a wide margin of safety in the form of cash.
Putting the dividend aside and ZIM is still an attractive company in its own right. ZIM boasts a smaller P/E ratio than many of its competitors in the shipping space and has had historically high earnings and revenue figures.
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