Overseas Shipholding Group OSG has announced they want to purchase the remaining units of OSG America L.P. OSP. The offer is for $8.00 per share, about 12% above the recent average price. The reason for the purchase is interesting and shows the company’s interest in their shareholders:

Morten Arntzen, President and CEO said, “While we continue to believe that OSG America can generate attractive long-term returns, recent adverse changes in the outlook for the Jones Act market have created significant near- and medium-term challenges for OSG America’s business. As a result of these deteriorating market conditions, we expect OSG America’s distributable cash flow generated in the second half of 2009 through 2010 to be materially below that required to fund its minimum quarterly distribution. While the Partnership’s distribution policy is established by its Board of Directors, we believe that the Partnership will be unable to continue its current levels of distributions to common unitholders in this challenging market environment. Furthermore, vessel cancellations, delivery delays and tighter credit and equity market conditions have diminished OSG America’s fleet growth and expansion opportunities, which were central to the investment story at its initial public offering. In light of these difficult circumstances, we believe that our offer to acquire the public units of OSG America represents an attractive opportunity for unitholders to realize value for their units at a significant premium to the recent unit price.”

OSP stock has appreciated 44% so far in 2009 and the distribution is at a 21% rate, so shareholders have had a nice run this year. It will be interesting to see how this move affects to bottom line of OSG.

OSG America L.P. OSP is a U.S. flagged transporter of petroleum products, primarily by barge. Overseas Shipholding Group holds the general management shares and 75.1% of the LP shares. OSP has been paying a steady 37.5¢ per share quarterly distribution since its inception in late 2007. Here is a quote from the last quarterly earnings concerning distribution coverage:

The Partnership generated $17.5 million of distributable cash flow for the first quarter of 2009, resulting in a distribution coverage ratio of 152%. Excluding the dividend of $5.3 million received from an affiliated company (Alaska Tanker Company), distribution coverage ratio for the period was 106%.

It appears the Alaska Tanker Company dividend was an one-time or annual event. The coverage ratio for all of 2008 was 119%. The current distribution rate looks a little iffy.

Overseas Shipholding Group OSG covers the spectrum of tanker shipping: crude, product, gas and Jones Act (U.S. flagged). The $1.75 annual dividend seems adequately covered looking at the net earnings of $10.65 in 2008 and $4.53 in the 1st quarter of 2009. The companies website claims a 5-year dividend growth rate of 18%. OSG looks like a nice place for the conservative investor looking for a growing dividend stream.

Paragon Shipping Inc. PRGN currently charters their fleet of dry bulk carriers on 1 to 2 year charters. Through the 3rd quarter of 2008 Paragon had been paying 50¢ per share quarterly. The bulk shipping meltdown and financial problems caused many bulk shippers to suspend their distributions. Paragon elected to keep paying dividend a 5¢ per share, which they have for 2 quarters now. The company had very good results in the 1st quarter of 2009, so hopefully they will start increasing the payout soon.

Again, three shipping companies with 3 different dividend payout setups. More dividend paying companies soon.

Here are the payors 21 through 25 on my list. The stocks are listed in this order: Company and stock symbol, dividend earned on $1000 invested on 1/1/2009 (divide by 5 to get an annualized percentage) and the share price change since the beginning of the year.

• Teekay Tankers , $103.49, -2.3%
• Navios Maritime Partners LP, NMM, $112, +40.6%
• K-Sea Transportation Partners KSP, $11.858, +60.5%
• OSG America LP, OSP, $152.25, +41.2%
• Capital Product Partners LP CPLP, $186.88, +28.6%

Tankers, tankers and more tankers! As I finish up the 25, I now see that 15 of the stocks that are still paying dividends are in the tanker business and 8 of the top 10. Of this group Navios Maritime Partners is in dry bulk and K-Sea is river barges of the tanker variety.

The yield figure for this group are skewed due to my practice of starting with an equal dollar weight of each stock as of January 1, 2009. As you can see from the price appreciation, many of these stock had been beaten down too far by the first of the year, thus putting a higher number of shares in my model portfolio. I need to figure out a way to balance this out going forward, since I doubt any of us will be able purchase share at prices similar to the beginning of 2009.

Do note that these stocks are still trading at very high yields based on the current share prices. This would indicate that the market is still discounting a dividend cut for these companies. Teekay Tankers has their vessels on the spot market, so the dividend will probably be lower. K-Sea is paying out more than what I see as free cash flow. I am not familiar enough with OSG America and Capital Product Partners to make a guess on the status of their payouts. I currently own a position in Navios Maritime Partners and hope the payout is secure.

The cumulative value of the 42 stocks on an equal weighted basis is down 15.5% not including dividends since the 1st of the year. 10 of the stocks are in positive territory, leaving 32 lower than their value at the beginning of the year. On the positive side, OSG America L.P. OSP has gained 54% and K-Sea Transportation Partners, L.P. KSP which is up over 45%. No other stock on the list has gained more than 14%. On the loser side there are some scary numbers, led by the dividend slashing crowd. Here is a list: DRYS down 53%, OCNF minus 51%, DAC off 47%, SB losing 47% and GLNG 44% below where it started the year. Another 8 stocks have losses YTD greater than 30%.

My next grouping is those companies that are still paying some sort of on going distributions. At this time I have 26 stocks still listed as paying dividends. Total return for this group is a minus 10.9% including just under 3% earned so far in dividends. Biggest decliners were the previously mentioned Safe Bulkers (SB) and Overseas Shipholding Group OSG down 39%. It is interesting that OSG is the GP and holds 75% of the units in the top performing OSP.

Following the dividend payors is the group that has discontinued or suspended their payouts. This group of 8 stocks is down 32.6% so far this year. Diana Shipping, DSX is the standout, off only 2.6%.

Now some sector breakdowns (all returns do not include any dividends): Tankers consists of 18 stocks and are down 13.1%. 5 of the tanker stocks are currently in positive territory led by OSP, TOO and TGP. Dry Bulkers have 11 stocks in their group and are down 22.8%. Navios Maritime Partners, L.P. NMM is the single dry bulk stock with a positive return. The container and mixed fleet group has 8 components and is down 24.4%. Seaspan Corp SSW is the only winner in this group. I have an “other shipping” category consisting of 3 stocks: ISH, KSP and ULTR. KSP’s big gain so far has this bunch 2.6% into positive territory.

The first quarter has been pretty rough for this sector. The standouts have been the LPs that have been able to and appear to be able to continue their distributions. The shipping sector is still struggling, waiting for global economic activity to pick up again.