Comparing dividend yield
Because Navios Maritime Partners LP (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 (New York Stock Exchange) and the NASDAQ (National Association of Securities Dealers Automated Quotations). 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.
As the above graph shows, Navios Maritime Partners (NMM) has maintained dividend yields above those of the broad MLP universe and energy MLPs. NMM’s current yield is 2.8 times that of 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 of contracts is already priced into 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 12%, which is quite attractive.
Analyst estimates include downside
Wall Street analysts’ estimates for NMM’s EBITDA are $165 million and $169 million for 2015 and 2016, respectively, compared with $156.9 million for 2014. This is despite the addition of two container vessels in the second half of 2014 and one container vessel in 2015. This implies that estimates are already factoring in a downside related to rechartering of contracts at lower prices.
It has an attractive 17.5% dividend yield based on the dividend for the next four quarters. As we’ve discussed earlier, even after the contracts roll over, the one-year forward dividend yield should still be well above 12%. All the weakness from the contracts rollover is most likely priced in for NMM. So, given that the dry bulk market doesn’t go much lower from this level, there could be an upside for NMM.
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. This 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.