Sometimes the best time to make a new recommendation is when the market is selling off. As such, I have a new recommendation for you: KNOT Offshore Partners L.P. (KNOP), explains Mark Skousen, editor of High-Income Alert.
Based in Britain, KNOP is a limited partnership that acquires and operates shuttle tankers under long-term charters of five years or more. It currently operates 15 state-of-the-art tankers, each equipped with the latest technology that ensures safe and efficient offloading from offshore installations, even in the most challenging locations and weather conditions.
KNOP's customers are all leading oil and gas companies, including Shell, ExxonMobil, Equinor, Transpetro and Eni. That makes for pretty secure accounts receivable.
KNOP’s shuttles operate in a niche space, transporting oil from offshore production units to the coastline. This industry will experience substantial growth in the months and years ahead as oil production continues to move further offshore. Some of the largest oil reserves in the Southern Hemisphere, for instance, are more than 80 miles off the coast of Brazil.
The numbers here are already excellent. In the most recent quarter, KNOP’s net income soared 169% on a 55% increase in revenue. The partnership enjoys a 44% operating margin, and management is earning a healthy 13% return on equity.
A couple of analysts have given the stock some negative press since the company is fairly highly leveraged and oil and gas prices can be hard to predict. However, KNOT Offshore will have no problem servicing its debt in the near term, given the state of its current contracts. Also, the stock is dirt cheap at just nine times earnings.
Of course, in this service, we always insist on receiving some substantial dividend income while waiting for the capital gains. I believe KNOP's current yield of 9.7% nicely satisfies that objective.
This is an attractive energy play with plenty of trading potential and a huge dividend. So, pick up KNOT Offshore Partners at market today. Place a sell stop at $17.75 a share for protection.
