Ian Cowie: topping up a trust that’s a diversifier with a 5.9% yield

Our columnist has been adding to this trust in his ISA, which has delivered returns of 38% over the past year. 

When you consider all the terrible things that have shocked stock markets in the last year, with more bad news this week, any share that still managed to deliver total returns of 38% and 5.9% dividend income must be worth investigating. Better still, the asset allocation of the investment trust I have in mind would diversify most portfolios, as it has mine.

Step forward, Tufton Oceanic Assets (LSE:SHIP), which manages a fleet of 22 second-hand commercial sea-going vessels that includes containerships and tankers. This is a risky business at the best of times - as demonstrated when the Ever Given containership blocked the Suez Canal last year and the Ever Forward got stuck in the mud of Chesapeake Bay last month.

Sad to say, this is far from being the best of times and the geopolitical weather is getting worse. This week the world’s largest shipping management company, V.Group, called on NATO to protect commercial vessels in the Black Sea because 10 of them have been damaged by mines or missiles since Ukraine was invaded.

The world relies on this region for about 30% of its wheat, plus a substantial proportion of its sunflower oil and maize - or corn - and most of it is exported by sea. NATO is reluctant to row into this row for fear of escalating the conflict with Russia and it is doubtful whether Turkey would allow warships to pass through the Bosphorus.

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Fortunately, Rob King, SHIP’s non-executive chairman, was able to report recently: “The investment manager is monitoring the movements of all the company’s vessels and will prohibit the entry of any vessel into conflict zones, a right established in all the company’s charters.

“The board and the investment manager are also monitoring the new sanctions being put in place. The company and its vessels will remain compliant with all international sanctions imposed by the US, UK, EU and the UN.”

Back to business, SHIP updated investors on its first-quarter performance on Wednesday this week, when it reported that its net asset value (NAV) was $1.38 per share on March 31 after a total return of 2% during Q1 2022.

SHIP shares will go ex-dividend next Thursday, 5 May, and a dividend of $0.02 per share will be paid on 20 May. The NAV total return during the second half of 2021 was 22.3% and the company declared a profit of $72.2m or $0.253 per share for the period.

King said: “Following increased portfolio cash flow, we approved that the company further raised its target annual dividend from $0.075 to $0.080 per share. When the company is fully invested, the dividend cover is expected to be at least 1.8 times.”

SHIP’s gross operating profit surged to 20% in the last half-year, compared to 14% in the same period of 2020, while company costs and loan interest left a portfolio operating profit of 17%, compared to 12% the year before.

Looked at from a personal perspective, I first invested in SHIP at $1.21 in August last year, when I popped these shares in my ISA to make the most of tax-efficient income, and topped this holding up just over a week ago at $1.35.

What about the workers? King said: “The investment manager has, where possible, mitigated the impact of the global humanitarian crisis of crew members extended stay onboard commercial vessels due to Covid-related travel restrictions, taking active measures to expedite crew relief.

“As a result, only about 2% of crew members were overdue for relief by more than one month at the end of 2021 compared to 7% for the top 10 ship managers. The overdue crew member average for the global fleet, across all operators, is likely to be much higher.”

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SHIP is also investing in reducing its vessels’ carbon footprint with more efficient engines that burn less ‘bunker fuel’ - a residue of the refining process that produces a lot of pollution. So this investment trust is earning some ethical brownie points, too.

Its most directly comparable rival is Taylor Maritime Investments (LSE:TMI), which is larger with total assets of $475 million compared to SHIP’s $426 million, but yields only 4.7% income. A reader who knows more about maritime transport than me speaks highly of TMI’s management but this investment trust was launched last May, whereas SHIP should celebrate its fifth anniversary in December, so I don’t see why I should pay a small premium of 3.5% above NAV for a fund without much track record when the older one trades at a modest 2.2% discount.

Most importantly, both SHIP and TMI seem to have shunned the kind of clever dick financial engineering that grounded some aircraft leasing investment trusts, even before Covid made a bad situation worse. More positively, there is some evidence that shipping prospers during periods of high inflation - so long as this does not degenerate into recession - and the Organisation of Economic Co-operation and Development (OECD) estimates that more than 90% of world trade is transported by sea.

So, despite a series of storms battering global stock markets, SHIP should stay afloat and I intend to buy more in future. Full steam ahead!

Ian Cowie is a freelance contributor and not a direct employee of interactive investor.

Ian Cowie owns shares in Tufton Oceanic Assets (SHIP) as part of a globally diversified portfolio of investment trusts and other shares.