Small-Cap Spotlight: Diana Shipping Taking On Water?

Diana's fleet primarily carries iron ore, coal and grain, along with other basic commodities that benefit from broad demand throughout the world. Not surprisingly, China plays a major role here, as demand for iron ore and related commodities has been growing at a 15%-20% clip in recent years. The result has been a steady increase in the rates that Diana and other shipping companies can charge for their services.

Just two months ago, shares of DSX surged when the company announced it had entered a 12-month charter agreement for its Erato Panamax ship at a gross rate of just over $80,000 per day. This was a pleasant surprise for investors who had been expecting rates to rise at a much more conservative clip. Most Street analysts had been using a Panamax charter rate well below the $70,000 mark for the coming year.

Expectations for shipping rates have since pulled back, helping bring Diana's share price back to levels that are attractive for investors looking to get in on the action. Perhaps the best part of the story is that long-term investors don't have to rely on a major catalyst to make this a successful investment. If the stock merely treads water over the next 12 months, shareholders will earn a solid 8% return solely on the basis of the company's generous dividend payout.