AP Moeller Maersk (CO: MAERSK.B) (OTCPK: AMKBY) (LON: 0O77) shares have just dropped 24% in Europe this morning. Which, given the record profits just announced, seems more than a little odd. However, all can be explained. This feeds into how managements like to manage dividend growth over time. This then leads to excessive profits being paid out as special dividends, not a rise in the regular one. Which is what has just happened at Maersk.
Moeller Maersk's profits were truly excellent. Maersk, while it has several divisions, is really driven by the container shipping division. That had a truly superb year as container freight rates soared in the wake of lockdown. OK, that's great, but why should that lead to the Maersk share price falling 24%? The answer there is that management is certain that this year won't be like last year. In this they're absolutely right. The Freightos container index for China to Europe is back down again to $1,500 and that sort of range, down from the peaks of $10,000 last year. Container shipping should be nicely profitable this year but not a licence to print money.
AP Moeller Maersk share price from London Stock Exchange
Excellent profits last year, normal profits this. So, what should Maersk management do? One idea would be to pay those excessive profits out as a dividend. Which sure, they could do that. But there's a fashion, a desire, among corporate management. They want to be able to point to continually rising dividends over time. Corporations really like being able to say they've raised the dividend for 20 years, or 50 years, straight. It's only in extremis that they want to have to cut or rebase the dividend (as Shell did last year).
So, what happens is that the regular dividend is raised by the regular amount. Then if there are truly exceptional years - as Maersk had last year - a special dividend is paid. In polite company this isn't included in the calculation of a serially rising regular dividend. Other than that's just how it works there's no particular reason for this. But that is just the way it all works.
So, Maersk has paid out a special dividend (4,300 DKK, or around 527 euro) per share. And the shares went ex-dividend this morning. Which is how Maersk announces superb, even excessive, profits but the stock then drops 24%. Because the profits all got paid out to the shareholders so they've now got a pile of cash and also still their shares. The shares obviously being worth less by the amount of cash they've also just received.