Last month DryShips Inc. (NASDAQ:DRYS) announced the initiation of a $2.5 million dividend to common stockholders. But is it worth investing in DryShips for this dividend? To put it simply, no. The dividend’s size will depend upon how much DryShip’s CEO, George Economou, has diluted the stock by the time a per-share payout is determined. And I expect shares outstanding to have quadrupled.
Economou has been called the worst CEO on earth because of his history of reverse splits and equity dilution. His antics have wiped out legacy shareholders by over 90% this year alone. And while a dividend looks like a nice way for Economou to give back to the shareholders he has taken so much from, don’t be fooled. DryShips’ new dividend is just a drop in the bucket for this troubled company, and it’s honestly just a distraction.”
To put it bluntly, Economou has fanned the flame of angry investors with his actions throughout the years that have watered down shareholder value. This certainly factors into one of the most glaring issues with investing in the shipping company’s stock.
Calculating DryShips’ Dividend
Economou has not yet confirmed a specific per-share amount of the dividend, and this is because of the mass equity dilution that has occurred between the announcement of the dividend and the record date. At the time of the fourth quarter result for 2016, DryShips had $36.3 million shares outstanding. Back then, a $2.5 million-dollar dividend would have totaled a staggering $0.068 per share, marking over 4% of the current stock price of $1.70.
For context, that is for one quarter alone, and dividends are usually paid four times a year.
But why was DryShips’ equity-base so small in February? Simple. Economou reverse-split the stock multiple times, reducing the total amount of shares outstanding to (nominally) increase the price before rapidly expanding the total amount via dilution. Now, DryShips’ shares outstanding are expected to be around 150 million, if not more. We will only know for sure when Economou officially announces the per share amount of the dividend.
Regardless, at 150 million shares outstanding, the $2.5 million payout is a more modest $0.016 per share. $0.016 per share, on a stock price of roughly $1.70, translates to a dividend yield of a little under 1% for the quarter and a little under 4% for the year. 4% is a reasonable return for the overall market, but for DryShips, a stock that can swing 20-30% in a single day, this payout is just a drop in a bucket.
Long-Term Thesis for DryShips
DryShips is set to record shareholders for its dividend tomorrow. This payout comes after several weeks of wanton equity dilution that may have expanded shares outstanding to around $150 million. The quarterly dividend will probably be a little under 1% and translate to 3-4% annually.
Ultimately, investors should see the DryShips dividend as nothing more than a distraction. The truth is that Economou has no business paying a dividend with money he essentially extracted from shareholders via dilution. This dividend is one in a long line of questionable, shady decisions from DryShips’ management. Remember, in 2016, DryShips reported a net loss of $206 million. As long as the firm continues to bleed money at this rate, future equity dilution and stock price declines are virtually guaranteed – dividend or no dividend.