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Could Navios Partners’ Dividend Cut Be a Long-Term Opportunity?

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Capitalizing on the market opportunity

Navios Maritime Partners (NMM) will save $72 million annually from the suspension of dividends (DVY). While the previous cut was necessary as its earnings did not provide sufficient coverage, with the current cut, the company looks to be repositioning itself amid a prolonged downturn for the dry bulk industry.

During the company’s conference call, management mentioned that they should be able to redeploy cash assertively in a fleet renewal program or otherwise. NMM’s CEO Angeliki Frangou stated that “in summary, by conserving cash NMM can capitalize on market relocations and become a unique platform in the dry industry positioned to acquire assets and create capital gains.”

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Depressed secondhand vessel values

The current depressed values for secondhand vessels has created an opportunity for the companies with the balance sheet firepower to fund these acquisitions. While Diana Shipping (DSX) has acquired vessels on the secondhand market at attractive prices, Scorpio Bulkers (SALT), Navios Maritime Holdings (NM), and DryShips (DRYS) are coming under increasing pressure to sell vessels to increase their liquidity runway.

Short-term pain for long-term gain?

The company’s management mentioned that they’ll be looking for acquisitions of both dry bulk vessels and container vessels to take advantage of the current low secondhand values. This represents a change in stance for the management. Earlier, they were focused on acquiring vessels in the container ship segment only.

Management also clarified that at the current spot and time charter rates, most of the vessels are burning cash, so the acquisitions will not generate cash flow. They will, however, allow shareholders to participate in the capital gains as asset values eventually recover. This implies foregoing short-term gains as the company anticipates creating long-term gains for the shareholders. During the call management also indicated that the savings could be used for share buybacks.

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