investment idea

Just want to remember it, by no means advising it. With the world slipping into recession, a transportation stock seems like a very risky bet. But this one has some merit, and I may want to look into it more.

Box Ships (NYSE: TEU ) .

The company was spun off from Paragon Shipping (NYSE: PRGN ) back in April via an IPO. After a few vessel acquisitions, Box Ships now operates a fleet of seven containerships that transport goods across the globe. Containerships carry some 90% of the world's dry cargo, and Box's fleet is among the youngest, with an average age of just 39 months.

It focuses on medium-size ships (from sub-Panamax to post-Panamax), since there's a lack of supply in that space coming online in future years. The company's strategy is to sign its ships to medium-length charters in order to capture rising containership rates. Currently, the fleet is chartered out for an average of 30 months, so there's some cash flow stability in the business. And for 2012, the company already has 93% of revenue days secured.

Stormy seas
Charter rates have been rough over the last six months or so, with rates being sliced in half and well below their 10-year average. But what matters for Box is what happens when it comes time to charter two vessels -- two that produce the lowest revenue -- whose contracts expire in August 2012. Management expects rates to pick up in early 2012, as supply comes into more balance with demand.

In fact, conditions look good in the containership market longer term, with demand expected to outstrip supply until at least 2015. That should be good news for shipping rates.

Don't get this market confused with dry bulk shippers, where oversupply has crippled the industry. There, shippers such Dry Ships (Nasdaq: DRYS ) , Diana Shipping (NYSE: DSX ) , and Frontline (NYSE: FRO ) have been hurting for several years, and once-generous dividends have dried up faster than a California raisin in Death Valley. Navios Maritime (NYSE: NM ) is one of the few that has managed to maintain a dividend somewhere close to its payout of a few years ago. In contrast, the containership market looks much stronger.

The dividend
In its most recent quarter, the company earned $0.32 per share, a number that should be fairly stable given its chartered ships. So its dividend of $0.30 per share is high for a normal company, but it's not outrageous for a shipper. Because growth capital expenditure is so high for shippers, it's necessary to raise capital via debt or equity offerings anyway, so it can make sense to pay out all profits to shareholders. The company has promised a $0.30 dividend for the fourth quarter, too.

With the downturn in charter rates, the company is looking for opportunities to acquire other vessels at attractive prices. On the conference call, CEO Michael Bodouroglou promised that Box would look for only accretive acquisitions that could boost the dividend. With the company's moderate leverage (for a shipper) of 52% of net debt/total capitalization, it should be able to issue more debt and not dilute equity holders.

With a contracted fleet of ships, we should have some confidence in the company maintaining its high payout.
An expected yield of 6%-8% would be in line with some of its larger peers such as Costamare and Seaspan, meaning the stock might gain somewhere between 46% and 95% from its current price.

Risks
As with any investment, there are risks to Box. Paragon still owns about 21% of the company from the spinoff IPO, and the CEO owns 18% of Paragon and 11% of Box as well. Bodouroglou is also the CEO of Paragon. Also of concern is that Bodouroglou owns the management company to which Box Ships pays a management fee based on daily charter rates. Yes, it's a cozy relationship that bears some watching to see if management is self-dealing.

Another threat to the company is the fragile world economy. Container shipping has been on a decades-long upswing, but as we saw in 2008-2009, a global economic decline could really hurt the industry. And any type of supply buildout like we've seen among dry bulk shippers would wreak havoc on charter rates.