I’m Shipping Out of Navios
06/15/2011 3:14 pm EST
Nothing wrong with the yield on Navios Maritime Partners (NMM)—9.48% on a trailing-12-month dividend track record.
But how do you feel about the volatility of this master limited partnership as we head into the possibility of a slowing global economy? Dry bulk shippers are extremely sensitive to changes in global economic activity, since day rates for their ships and the number of days those ships are under contract vary with how much iron ore and coal and the like need to go from hither to yon.
The partnership units, which trade at $17.93 today, June 14, fell to $13.96 in last year’s summer slump.
The low, during the global economic crisis, was $2.86 on November 20, 2008.
(Until a reader reminded me a few days ago, I’d forgotten that I hadn’t actually deleted Navios Maritime Partners from the online portfolio or written up the logic for the sell. My bad.)
Looking at the MLP's most recent quarterly financial, I don’t see signs that the partnership is too stretched to survive the next downturn:
- Long-term debt has actually dropped slightly, to $285 million from $292 million in the first quarter of 2010.
- Current liabilities have climbed modestly, to $49 million from $45 million.
- Net income has increased to $16.6 million, from $12.6 million.
That income figure isn’t quite as good for unit holders as it seems, however. The company has grown net income by buying more ships and putting them to work—exactly what a master limited partnership is supposed to do.
However, to raise the money to buy those ships, the partnership has had to sell more units. The partnership unit count has gone up to 42 million from 27 million. That means that, when it comes to distributing income as dividends, it will have to be spread over way more partnership units.
At some point, I think the partnership will have put all the money it raised to work in the form of fee-earning ships. But right now, the capital raising has run ahead of the income.
Frankly, on this one I’d rather be sitting on the sidelines watching to see if a soft patch in global growth takes the unit price down to bargain territory. Right now, the price is too high for the risk, in my opinion.
Full disclosure: I don’t own shares of any of the companies mentioned in this column in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund (JUBAX), may or may not now own positions in any stock mentioned in this column. The fund did not own shares of Navios Maritime Partners as of the end of March. For a full list of the stocks in the fund as of the end of March, see the fund’s portfolio here.