Small-Cap Spotlight: Diana Shipping Taking On Water?

This week, Frank and Larsen put the spotlight on Diana Shipping(DSX Quote), one of the major (but still small-cap) names in the Greek dry-bulk shipping sector. Companies in this sector own and operate fleets of ships that haul thousands of tons of cargo at rates set months in advance. Should you put this name in your portfolio?

Larsen: A small-cap link to long-term global economic growth

Frank and I cover a lot of territory in researching small-cap stocks, and some of the most exciting names we find are linked to specific stories, from restaurants to nuclear power to Chinese online gaming. Diana Shipping offers a different investment opportunity in the small-cap sector. Its story is not levered to a specific growth story; rather, the stock trades in line with expectations for the global economy. More importantly, the recent pullback in Diana's share price has created an extremely attractive entry point for new investors.

I like this name as a pick for the holiday week, because it's a small-cap stock that truly gives back to investors. Trading at around $30, Diana Shipping offers a dividend yield of around 8%. This high return is rare in the world of small-cap stocks and is a major departure from the names Frank and I have offered in previous Small-Cap Spotlights.

Diana Shipping operates a fleet of 17 ships -- 13 Panamax carriers and four larger Capesize bulkers. On any given day, its ships carry about 1.7 million deadweight tons (dwt) of cargo around the world. Diana stands out vs. its competitors because its entire fleet was built in the last six years, so its ships have an average age of about four years compared with the industry average of 15 years (the average lifespan of a ship is 25 years). This is important, because it means the company will have plenty of time before it has to replace existing revenue-generating ships. In fact, Diana is adding two more Capesize bulkers in 2010.