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Will Navios Maritime Partners Offer Upside from Here?

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Part 6
Will Navios Maritime Partners Offer Upside from Here? PART 6 OF 6

Will Navios Maritime Partners Offer Upside from Here?

Comparing dividend yield

Because Navios Maritime Partners (NMM) is an MLP, we’ve compared its dividend yield to the S&P MLP Index and the Alerian MLP Index. The S&P MLP Index represents a broad MLP universe, providing exposure to leading partnerships trading on the NYSE and the NASDAQ. The Alerian MLP Index represents leading large- and mid-cap energy MLPs. Ten-year US government bond yields represent the risk-free yield on a security.

 Will Navios Maritime Partners Offer Upside from Here?

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Attractive valuation

As the above graph shows, Navios Partners has maintained dividend yields above those of the broad MLP universe and energy MLPs. NMM’s current yield is 4.0 times that of the Alerian MLP Index. The question is: will NMM be able to maintain above-average dividend yields in the future? As we’ve already seen, at current valuations, much of the downside from rechartering contracts is already priced in to the share price. Considering a cut of 35% to the operating surplus, as we previously discussed, the one-year forward dividend yield should still be close to 15%, which is quite attractive.

NMM has traded at a dividend yield of 26% in October 2008, and its lowest dividend yield (the highest multiple) of 6.9% came in July 2011, at the peak of the dry bulk industry. There could be a short-term downside from here, given poor Chinese fundamentals and eventual pressure on dry bulk rates. However, you should note that it’s not always possible to buy a stock at its lowest lows.

Upside and downside

Having said that, any deterioration in dry bulk or container trade fundamentals going forward would be negative for NMM.

We should also point out that any better-than-expected revival in dry bulk shipping markets should be a tailwind for Navios Maritime Partners’ share price, which could lead to better pricing on its expiring charters.

This would be a tailwind for all the other dry bulkers, including Navios Maritime Holdings (NM), DryShips (DRYS), Diana Shipping (DSX), Scorpio Bulkers (SALT), and Golden Ocean Group (GOGL). GOGL forms 4.03% of the Guggenheim Shipping ETF (SEA). SEA generally follows the Dow Jones Shipping Index. In contrast, the SPDR S&P Metals and Mining Index ETF (XME) gives investors exposure to the diversified metals and mining space.

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