ZIM Integrated (NYSE: ZIM) stock price remained under pressure as concerns about the company’s business continued. The shares plunged to a low of $16.90, the lowest level since January this year. It has fallen by more than 81% from the highest point in 2022, underperforming the S&P 500 index.
Shipping rates bottoming
ZIM stock price has crashed hard as concerns about the falling shipping prices imply that the company will need to cut its dividends in the coming months. The overall cost of shipping a container crashed from over $10,000 during the pandemic to less than $4,000.
In the most recent results. ZIM Integrated pegged its recovery on the shipping sector. In a statement, the management insisted that shipping costs were nearing the bottom. Eli Glickman, the CEO said:
“We think that, the market is close to reaching a bottom before the demand starts to come back. And as a result, we expect that we will have a positive effect on the overall freight rates.”
Now, there are signs that shipping costs have started moving up. According to S&P Global, the prices are nearing a bottom while some have already started rising gradually recently. In a separate report, Linerlytica said that momentum was rising. The report said:
“Market sentiment continues to turn positive. Charter rates have continued to rise, along with durations with carriers willing to commit to longer term fixtures of 12 months and longer, reflecting the improved market conditions.”
As shown below, the pace of shipping price drop has moderated in the past few weeks. Therefore, if these analysts are accurate, it means that ZIM Integrated revenue and profitability will improve in the next few quarters. This performance will still be lower than where it was during the pandemic.
How safe is the ZIM dividend?
ZIM Integrated investors buy the shares for its dividends. In 2022, the company paid a total of $16.95 per share in 2022. Therefore, there is a likelihood that the company’s payout this year will be smaller than what it paid in 2022 since revenues are expected to drop to $6.25 billion.
As I wrote before, ZIM seems well-positioned for the new normal because of its strong balance sheet. It has over $3.85 billion in cash and minimal debt. It has also changed its business to focus more on chartering ships.
The reality is that ZIM Integrated’s dividend could be safe this year, helped by the huge cash balances. Improved shipping costs could help to offset the decline in profitability.
What is clear, however, is that ZIM’s good days are behind it since we are not going back to the era of elevated shipping costs and demand.
The ZIM Integrated share price has been under intense pressure in the past few months. It is now trading at $16, where it struggled to move below this year. It remains below the 50-period moving average while the Relative Strength Index (RSI) has moved close to the oversold level.
Therefore, at this stage, the outlook of the stock is neutral. A drop below the support at $16 will signal that bears have prevailed, which will push the shares sharply lower. The only area where buying ZIM shares makes sense is if bulls manage to move above the key resistance point at $24.97.
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