Is Costamare's Dividend At Risk?

Costamare Inc (NYSE: CMRE) needs to cut its divided "meaningfully" to preserve the strength of its balance sheet, Morgan Stanley said while downgrading the stock to Equal Weight.

The brokerage expects a $0.24 annual dividend (reduced from $1.16) starting this quarter.

In addition, Morgan Stanley expects a fall in EPS as existing charters gradually expire. It expects "EPS to decline from $1.43 in 2016 to $0.88 in 2017, bottoming at about $0.40 in 2018 before the market gradually starts improving, bringing 2020 estimated EPS to $0.75."

That said, the downgrade reflects Morgan Stanley's expectation of a prolonged weakness in the container shipping industry and the growing market uncertainty post Brexit.

Related Link: Morgan Stanley: Greek Shipping Companies Need Not Worry

Further, the brokerage noted container demand is expected to remain weak below the 4–4.5 percent growth rate of nominal fleet capacity, at least until 2018. The charter rates are also expected to be under pressure until the end of 2018.

"Despite our cautious market outlook, we continue to view CMRE as the highest quality name in the space and expect it to remain safely profitable and keep a strong balance sheet, thanks to its portfolio of solid charter contracts with a backlog of ~$1.7 billion," analyst Fotis Giannakoulis explained.

Giannakoulis slashed price target on the stock to $7.5 from $12.

Shares of Costamare closed Wednesday's regular trading session at $9.03 and were down roughly 3 percent in Thursday's pre-market session.