ZIM stock price forms a death cross as dividend risks rise

The ZIM stock price has remained in a technical bear market, declining by over 37% from its peak in December. It was trading at $12.95 on Monday, dragging its market cap from $3.26 billion to the current $1.56 billion. So, is ZIM a good buy as the World Container Index drops?

Container shipping prices are falling

ZIM Integrated is a top shipping company listed in the United States. It is the tenth biggest player in the industry, and is known for focusing on niche routes the Pacific, Latin America, and the Cross-Suez areas. 

The company is also known for its business model. Unlike other companies that contract and own ships, ZIM focuses on charters, making it an asset-light business. This model also ensures that it has newer and more energy-efficient ships.

ZIM Integrated and other shipping companies are currently experiencing a challenging period. This started during the pandemic when demand for Chinese goods rose in countries like the United States and Europe. 

Shipping demand then slowed after the pandemic as the world dealt with soaring inflation and high interest rates. These events led to ZIM Integrated’s annual revenue falling from $12.5 billion in 2022 to $5.16 billion.

It also affected its profitability, which in turn impacted its dividend payments to investors. It reported a net loss of $2.6 billion in 2023. 

The company’s business began to improve in late 2023, as shipping rates increased due to the war in Ukraine. It has also been affected by the crisis in the Middle East and the Panama Canal.

At the same time, there are rising concerns about the ongoing trade war that may impact the volume of goods traded globally. Trump has implemented a 145% tariff on all goods from China, and a universal levy on all goods brought to the country.

Analysts believe that some large customers may decide to reduce their orders as they address their supply chain issues. This explains why container shipping costs have plunged in the past few months. 

The Drewry World Container Index (WCI) plunged to $2,192 last week, down from a high of $5,806 last year. As shown below, the trend is going downwards, a sign that it will continue falling in the near term. 

Is the ZIM dividend yield safe?

Investors allocate money to ZIM Integrated for its high dividends. According to SeekingAlpha, it has a dividend yield of 91%, while Google places the yield at 55.15%. 

The most recent results published in March showed that ZIM had a net income of $563 million in the fourth quarter, a big turnaround for a company that lost over $147 million in the same period a year earlier. 

Its fourth-quarter revenue of $2.8 billion was 80% higher than a year earlier. The annual revenue rose by 63% to over $8.43 billion. 

Analysts are pessimistic about ZIM’s business this year as shipping rates fall. The average estimate is that the first quarter revenue will be $1.84 billion, a 17.8% increase from the same period last year. However, its annual revenue is expected to drop to $6.53 billion this year and $5.94 billion next year, respectively. 

Therefore, with shipping costs and profits expected to fall, there is a risk that the company will cut its dividend this year.

ZIM Integrated stock price analysis

The daily chart shows that the ZIM share price has plunged in the past few months. It has dropped from a high of $20.7 in November last year to $13 today. 

The stock formed a death cross pattern as the 50-day and 200-day moving averages crossed each other. It has also moved close to the 50% Fibonacci Retracement level.

Therefore, there is a risk that the stock will keep falling this year, with the main target being the psychological point at $10.

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