Zim Integrated Shipping Services: Here’s why high dividend yields can be misleading – The Average Joe
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    Zim Integrated Shipping Services: Here’s why high dividend yields can be misleading

    victorlei

    November 22, 2022

    Common misconception: 111% dividend yield? So you’re telling me, in a year, I’ll get my money back just from dividends? Technically correct. But also not.

    It’s tempting, but here’s why it’s not 100% reliable.

    Let’s rewind. What is a dividend yield? It’s the annual cash return (dividends) on your investment.

    • Dividend yield = dividend payment over last 12 months / stock price
    • Example: Walmart has a dividend yield of 1.48% ($2.24 dividends paid in the past year divided by the current share price of $151.69)

    Back to Zim.

    Zim provides container shipping and related services — a highly cyclical business that does well during a strong economy.

    • The more consumers buy, the more businesses ship, and the better Zim does.
    • During COVID, Zim benefited from skyrocketing shipping rates and strong demand.

    They made so much money they declared a $17 dividend per share at the start of 2022. Partly explains why their yield is so high.

    Excluding this dividend, Zim has paid out an average $3 dividend per quarter since it went public in 2021. That’s still a ridiculous 50% dividend yield.

    BUT: If $ZIM hadn’t fallen 70% from its peak, that would have been a ~14% yield.

    Investors have two main concerns:

    • Will Zim cut their dividend during a recession?
    • How will a recession impact the company’s stock price?

    A 50% dividend payment looks a lot less attractive if the stock falls another 50%.

    General rule: High dividend yields (general rule: >10%) warrant caution. This is often a sign of trouble at the company or with the industry. With Zim, it’s looking like problems in the industry.

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