Dividends and Cruises are coming back – but are the stocks worth it?

If you have ever taken a bus tour and liked it , then the idea behind cruising is very similar. In each people go together, they generally pay one fee for hotels, food and the bus or boat and off they go to visit the world. Both bus tours and cruises are popular with those who have retired, because many people have put off seeing the world until they have time and after they have fulfilled other responsibilities like raising children, paying off mortgages, etc. If you have never been on a cruise, as long as the weather is good, they are a delight and ever year more people were going on cruises. With COVID-19, the cruise industry was shut down because it involved lots of people in small places. Now the economy is opening up as people are vaccinated, are cruise stocks worth buying? The prices are still trading 25 to 50% below pre COVID levels.

The 3 big cruise ships are Carnival, Royal Caribbean Cruises and Norwegian Cruise Line Holdings. Other companies such as Disney as a cruise line, but it is not a pure play.

Larry MacDonald examined the companies:

Carnival, the largest operator with other 100 ships. Its revenues fell 2/3s to $830 million during the 12 months ending February 28, net income is a loss of $11.4 billion. Carnival has a negative cash flow or cash burn of $530 million; Royal Caribbean cash burn is $270 million a month and Norwegian is $170 million. On a per ship basis, Norwegian has the highest cash burn.

During the past year and half, the companies have been trying to stay in business by selling 10% of their ships, issuing shares and selling bonds to raise $40 billion and they still have cash sitting on their balance sheets. Carnival has $11.5 billion in cash and short term investments.

Advance bookings saw a 90% jump in booking volumes over the previous quarter and reservations for 2022 are stronger than they were in 2019. There is pent up demand from people who have been on cruises.

The bad news are there are many challenges: Carnival has 90,000 employees to bring back to work who live in many different countries. The selling of bonds was in junk bond rating which meant interest rate payments for Carnival went from 200 million in 2019 to $1.2 billion in 2020. When people are cruising again, the issuing of shares or share dilution and smaller fleets means the earnings per share target will be a greater challenge.

Linking to dividend paying stocks, similar to a person’s real life in debt is low and assess to credit is high, they make it easier to invest in. It is wonderful people wish to cruise again, and likely the costs will be low to get people in the door, but will cruise lines be profitable again only time will tell.

There are more questions than answers, till the next time – to raising questions.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s