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Questor: Get on board Clarkson and enjoy the dividend while you await a shipping resurgence
“Being paid to wait” is how investors describe holding a share that is currently unfashionable but pays a decent or rising dividend. Sooner or later, the thinking goes, sentiment towards the stock will improve and, in addition to the yield, investors will be rewarded with a rising share price.
Clarkson, the 164-year-old shipping broker, looks like this kind of stock. It yields 3.1pc and the dividend has been rising, but, with the shipping market becalmed and ship owners forced to accept low prices for carrying the world’s cargos, the shares are at roughly the same level as three years ago.
Dividend growth has been strong and consistent: the payout has now been raised for 13 consecutive years, despite the financial crisis. The increases have averaged 11pc a year over that period.
Among the fund managers happy to hold Clarkson on a “being paid to wait” basis is Charles Montanaro, who runs the Montanaro UK Income fund.
We take particular notice of Mr Montanaro not just because he has a strong record – he has outperformed his peers significantly since 2002, according to FE Trustnet, the investment analyst – but because he holds, albeit indirectly, a very large stake in the fund.
His firm, Montanaro Asset Management, in which he is the majority shareholder, is a top 10 investor in the fund, with a £3.7m stake. This equates to 2.5pc of the fund’s total assets.
Mr Montanaro acknowledged that shipping markets had been tough in recent years, partly because an overcapacity of vessels in the run-up to the financial crisis had resulted in lower freight rates and lower vessel values as the world economy slowed. Freight rates in most shipping markets have yet to recover.
But he said Clarkson had not stood still during these difficult times. Instead, it has grown volumes by strengthening its competitive position and taking market share from smaller competitors that have struggled in today’s harsh environment. The strength of Clarkson’s balance sheet has also allowed it to make a series of strategic acquisitions while retaining a net cash position.
Mr Montanaro told Questor: “The reality remains that 85pc of world trade is carried on ships. Meanwhile, the fee that Clarkson levies on the transactions it intermediates has remained stable at 1.25pc for more than a century.
“Looking ahead, global trade volumes should recover. When this happens, overcapacity will become less of an issue and freight rates should improve. Clarkson will benefit from this.”
But he admitted that getting the timing right would be very difficult. “In such a highly cyclical industry, you need to invest early and as the cycle shows signs of bottoming. This is why, as long-term investors, we are happy to hold Clarkson.”
He also pointed out that, in the short term at least, the post-Brexit devaluation of sterling should benefit ship brokers because they typically conduct business in US dollars.
Clarkson is a top-10 holding in Mr Montanaro’s fund .
Another portfolio manager to hold the shares is Elaine Morgan of the Kames UK Smaller Companies fund. Ms Morgan is also a long-term outperformer, according to FE Trustnet, and also invests in her own fund.
She said: “With a strong balance sheet and strong free cashflow, Clarksons is well placed to weather the storm and gain market share, benefiting from the recovery that we expect to emerge as supply is recalibrated to demand growth.”
Further reassurance for investors comes from the fact that Clarkson’s board members hold significant stakes. Andi Case, the chief executive, owns about 732,000 shares, worth about £14.5m, while the finance director, Jeff Woyda, owns about 109,000 shares, worth about £2.2m, according to directorsholdings.com.
Peter Anker, an executive director, has a stake worth about £7.1m, while three non-executive directors, Peter Backhouse, James Morley and Edmond Warner, have stakes of about £119,000, £89,000 and £78,000 respectively.
Clearly the shares could struggle to make headway if global trade falters. But the robust dividend record should provide support. A buy for the long term.
Questor says: buy
Ticker: CKN
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