Will Ebiefung

About the Author Will Ebiefung

Will Ebiefung studied finance and accounting at the University of Tennesee. He works as a freelance investment analyst focusing on equities with market caps below $100 million. In addition to writing, Will is a full-time investor focusing on web properties and debt-based securities.

DryShips Inc. (DRYS): A Natural-Born Capital Killer


DryShips Inc. (NASDAQ:DRYS) released this week a statement announcing the continuation of its dividend policy with a $2.5 million payment scheduled for shareholders of record on May 1, 2017. DryShips already recorded a quarterly dividend on March 15, so why would the company set another dividend for May instead of later in the quarter? It looks like Economou is timing these dividends to coincide with the dilution and prevent the stock from losing too much value by keeping gullible investors buying.

In addition to the dividend announcement, DryShips provided updated per share data that can be used as a reference point against the ongoing dilution. Note, shares outstanding are low because of a 1-for-4 reverse stock split that serves to inflates per-share values.

Updated Key Information as of April 11, 2017:

– Cash and cash equivalents about $422.0 million, (or $8.98 per share)

– Book value of vessels, including deposits about $194.3 million, (or $4.13 per share)

– 3rd Party Loans about $16.5 million

– Sifnos Loan Facility balance about $200.0 million

– Number of Shares Outstanding about 47,010,986

On the surface, this data looks like great news. DryShips – at the time of this press release – has almost $9.00 in cash per share. But most companies don’t report cash per share in press releases, and DryShips probably reports this information to impress unsophisticated retail investors and induce them to buy the stock. The press release also states that the per share amount of the dividend depends on shares outstanding on the record date of May 1, 2017. It neglects to mention the exact number of shares outstanding that will exist on this date, information DryShips could easily calculate if it actually wanted to inform its investors.

In my article on DryShips’ March dividend, I estimated the per share payout by dividing the total sum of the capital raise ($226 million) by the current price of the stock ($2.20) – adding this quotient to DryShip’s current shares outstanding to get future shares outstanding. The total dividend ($2.5 million) was then divided by future shares outstanding to estimate the per-share value of the future dividend when it is locked in.

The result turned out to be extremely accurate, so I will use the same methodology to calculate the yield of this new dividend and provide more accurate representations of DryShips’ cash and book value per share after the dilution.

Current Shares OS Estimated Dilution Future Shares OS
47m 103m 150m

With 150 million shares outstanding, DryShips $2.5 million dividend translates to $0.016 per share. This is a yield of 72 basis points (0.73%). Cash per share will be $2.81, and book value per share will be $1.30 with all other factors held constant. To be fair, if the $226 million in dilutive capital is not already included in Economou’s claimed liquidity of $422m, the extra money will put DryShip’s cash and book value per share significantly higher than the figures I have calculated.

Conclusion

DryShips has announced another dividend that is suspiciously timed to correspond with a dilutive capital raise and R/S split. I estimate shares outstanding will total around 150 million by the time the dividend is recorded, and this comes out to a yield of 75 basis points. Cash and book value per share will also be significantly lower than what the press release implies.

DryShips’ dividend announcement and its misleading press release were probably designed to mislead unsophisticated investors into buying the stock. The information is out there, though. Investors who buy DryShips have no one to blame but themselves if they lose money.

 

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