Dividend commitment reaffirmed
Navios Maritime Partners LP’s (NMM) management reiterated its commitment to a minimum distribution of $1.77 through 2016. This results in a dividend yield of 17.5% at NMM’s current market price.
For 2Q15, NMM’s distribution exceeded EBITDA (earnings before interest, taxes, depreciation, and amortization) with a coverage ratio of 0.80x. Its distribution came in at $36.8 million for the quarter. To normalize the one-offs, NMM computed the pro forma coverage ratio of 1.04x. This ratio reflects the full quarter run rate of the vessel that was delivered on April 22, 2015, the foregone revenues on vessels dry docked in advance ($2.8 million) at the company’s discretion, and normalized revenues on hires of vessels received upfront.
The increased exposure to the container segment is driving NMM’s improved coverage ratio going forward. However, as we discussed in the previous article, contract resetting could lead to a downside in the future, which will not exactly be offset by NMM’s container segment.
Based on annualized calculations for 2Q15, after considering increased interest expense, maintenance, and replacement capital expenditure for an additional containership vessel, we can see close to a 35% decline in operating surplus in mid-2016 to mid-2017 from 2014 levels. This would mean a distribution coverage of 0.65x at the current $1.77 per share annually.
A corresponding decline of 35% from an operating surplus into distributions could lead to a dividend yield of 11.5% after 2016. Even after considering that, the one-year forward dividend yield would still be more than 12%. This level is also quite healthy compared to Navios Maritime Partners’ (NMM) dividend yield history, as you can see in the above graph. The average dividend yield for NMM has been 11.4%. The decline in distributions is most likely already priced at the current share price.
Navios Maritime Holdings (NM) has a dividend yield of 6.4%. Safe Bulkers (SB) has a dividend yield of 1.3%. DryShips (DRYS) and Diana Shipping (DSX) have not paid dividends in a long time. The Guggenheim Shipping ETF (SEA) has 2.03% holdings in NM. Investors interested in a broader industry exposure should consider the SPDR S&P 500 Trust ETF (SPY). The SPDR S&P Metals and Mining ETF (XME) is another way of playing the metals and mining industry.
As NMM is an MLP, we’ll compare its dividend yield to that of various MLPs in the next part to see how is it doing in comparison.