What happened
Shares of the Israel-based cargo company Zim Integrated Shipping Services (NYSE: ZIM) plunged by 28.2% over the first three and a half days of trading this week, according to data provided by S&P Global Market Intelligence. The big drop came immediately ahead of the company’s shares going ex-dividend on April 4.
So what
Why did investors jump ship after Zim’s stock went ex-dividend? Zim’s sky-high dividend yield is directly tied to its annual net income. With its top and bottom lines moving in the wrong direction of late, the shipping giant will likely pay less in dividends in 2023 than it did in 2022.
Complicating matters further, OPEC+ decided earlier this week to reduce oil supplies in order to boost crude prices later this year. This decision is sure to have a wide range of negative downstream effects on the global economy in general and shipping companies like Zim in particular.
On the macro side, higher oil prices could translate into higher commodity prices in the broad sense, reducing consumer spending power. This reduced spending power, in turn, will likely spill over into the shipping industry in the form of reduced demand. That’s unwelcome news for Zim and its shareholders.
In addition, rising crude prices will directly impact cargo shippers like Zim through higher costs, whereby lowering net income. In light of Zim’s dividend plan, a lower net income could translate into reduced dividend payments in the second half of the year.
Now what
Is Zim’s stock a buy on this latest weakness? That’s a tough call. The company’s management painted a fairly positive picture for 2023, despite these headwinds. But that was before OPEC+ decided to reduce its output.
As such, it might be best to take a wait-and-see approach with this ultra-high-yield dividend stock for now.
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George Budwell has no position in any of the stocks mentioned. The Motley Fool recommends Zim Integrated Shipping Services. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
