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Dredge Baby Dredge



April 30, 2010 – Comments (3) | RELATED TICKERS: GLDD


Here's an interesting one to keep an eye on.  The company is called Great Lakes Dredge & Dock Corporation (GLDD).  It currently sports a dividend yield of 1.3%, which won't knock your socks off...but at least it's something. It trades at a little over 18 times its trailing earnings, which isn't all that cheap, but it's a lot cheaper than it has been over the past several years.

Weather-related issues caused GLDD to miss earnings in March, sending the stock reeling from $6 all the way down to $4.50.  It has since recovered to around $5.50.

While this company is not as cheap nor does it pay as large a dividend as I usually like to see, it does have an interesting potential catalyst that could boost its share price in the near future.
While I was perusing my the latest issue of The Dredging News the other day (kidding) I came across this article:

Senators' Bill would force use of Harbor Maintenance Tax funds for much needed dredging work

In short, in 1987 the U.S. government established a Harbor Maintenance Tax equivalent to 0.125% of the value of their cargo from cargo vessels.  Not surprisingly, Uncle Sam has been skimming money from the Harbor Maintenance Tax revenues for years causing a backlog of dredging projects to build up as a result of a lack of funds.  

A recently proposed bill would prevent money from the Harbor Maintenance Trust Fund (HMTF) from being used for anything but, well, harbor maintenance.  

In 2009 the government collected around $1.3 billion in harbor maintenance taxes yet it spent only $808 million on projects.  The HMTF currently has a $5 billion surplus.

The Army Corps of Engineers supposedly has a dredging backlog of approximately 15 million cubic yards in the Great Lakes alone that is clogging ports and forcing ships to travel at less than capacity, operating less efficiently than they should be.  This doesn't even mention similar situations in other waterways across the country.  

Supporters of this bill hope that it will pass some time this summer, but whether it does remains to be seen.  If it is passed, it would create a huge surge of new projects for Great Lakes Dredge & Dock Corp. which currently owns around 47% of the market and it's share has been rising in recent years.  Specifically, GLDD estimates that its passage would result in $250 to $400 million in additional annual dredging work.

GLDD's expansion into international markets and its addition of other revenue streams like demolition and sand / stone supply will help to diversify its revenue and smooth out its earnings even if it the HMTF bill does not pass.   Furthermore, dredging is a business with high barriers to entry and U.S. laws specifically prohibit foreign dredging companies operating in the U.S.

I have not personally bought GLDD stock, but it is an interesting one to keep an eye on.


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3 Comments – Post Your Own

#1) On April 30, 2010 at 5:02 PM, TMFDeej (97.73) wrote:

These aren't related to the above rec, but they're too funny not to post on a Friday afternoon.  Courtesy of The Big Picture.  Enjoy.



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#2) On April 30, 2010 at 7:11 PM, vriguy (70.19) wrote:

LOL 10+Rec

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#3) On April 30, 2010 at 7:39 PM, Option1307 (30.54) wrote:


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