As part of our end-of-the-year review of the Protected Principal Retirement Strategy portfolio I have been spending several days researching liquefied natural gas [LNG] - more particularly the firms involved in transporting the commodity.
I believe that in the future there is money to be made in this asset class. In the past I have closely followed Golar LNG Partners LP (GMLP), which I consider to be close to the top of the line in the [LNG] sector. In recent days, its 8.5 million share offering has increased the depression in the stock price to where it has become quite attractive.
My interest has really been piqued by Dynagas LNG Partners LP (DLNG), a much smaller operation; however, its ships are newer (all built since 2007), and more modern that most. It is a much smaller capitalization company, and consequently, the risk is higher. Since our portfolio aims for yields in the seven to eight percent range, DLNG meets our criteria.
The following is a brief summary:
Dynagas LNG Partners LP
From the DLNG website one notes that DLNG is "a growth-oriented limited partnership which owns and operates high specification LNG carriers that are employed on multi-year (two, or more year) contracts to international energy companies". It is also worth noting that its carriers can operate in "Ice Class" conditions, affording additional flexibility.
DLNG's carriers are currently under contract to BG Group and Gazprom, and in addition DLNG has options to purchase seven additional LNG carriers.
While its website is still being developed, on December 12, it reported third quarter 2013 results. Here are some of the highlights:
- Net income was $11.9 million, a year-over-year increase of 79 percent
- Operating income was $14.1 million, a year-over-year increase of 51 percent
- Earnings per unit were $.40 versus $.22 for the same quarter last year
Charter rates are increasing, and should continue to increase into the future.
It is the intention of DLNG to pay a minimum quarterly distribution of $.365, or $1.46 annualized. At Friday's closing price of $19.60 this would equate to a 7.45 percent annual yield.
Earlier last week I initiated a small position in DLNG, and was hoping to add to it around the $19 level Friday, but was unsuccessful as folks probably read its quarterly report. I will continue to seek opportunities to add to our position.
Golar LNG Partners LP
Although DLNG is the focus stock for this article, I want to add a few tidbits about GMLP. Their earnings report issued on November 27 were also impressive with net income of $34.5 million on operating income of $55.8 million. More importantly, GMLP's distributable cash flow was $38.9 million for a coverage ratio of 1.25X. It also increased the quarterly distribution to $.5225.
As mentioned at the beginning of this article, I believe that the LNG sector will become more profitable as time passes, particularly those companies involved in its transport. There are limited opportunities to invest in the LNG transport sector (only a handful of stocks), but I believe that DLNG offers the opportunity to participate in sector growth based upon the modern carriers it uses and their multi-year contracts.
It is also our intention to initiate a position in GMLP should the stock price decline a bit more.
Additional disclosure: This article does not constitute either a buy or sell recommendation for any of the stocks mentioned.