- Shuttle tankers are able to solve oil & gas producers' ongoing problem of how to get remote offshore product to terminals and refineries when there's no pipeline connection.
- Knutsen Offshore Partners already has substantial minimum contracted revenues past 2017, which should amply support its distributions.
- Knutsen also has rights to buy from its general partner any shuttle tankers operating under charters of five or more years.
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Our recent articles have covered many new IPOs with high dividend yields. One common theme among many of these stocks is that they have ample future revenues contracted out that will support their distributions. Another feature is that they have the right of first offer on future "dropdown" assets from their sponsor/general partner.
We've found another such stock with these qualities, which operates in the shuttle tanker trade, which is yielding over 6%, and has been added to our High Dividend Stocks By Sector Tables (in the Energy section).
Profile: Based in Aberdeen, Scotland, KNOT Offshore Partners LP, (NYSE:KNOP), currently owns and operates a modern fleet of five state of the art shuttle tankers, each under long-term charters with major oil and gas companies engaged in offshore productions, such as BG Group (OTCQX:BRGYY), Statoil (NYSE:STO) and Transpetro.
KNOP's strategy is to "operate our vessels under long-term charters with stable cash flows and to grow our position in the shuttle tanker market through acquisitions from KNOT and third parties. Pursuant to our omnibus agreement with KNOT, we have the right to purchase from KNOT four newbuilds, three delivered to charterers during 2013 and one due to be delivered in 2014. Additionally pursuant to this omnibus agreement, we also have the right to purchase from KNOT any shuttle tankers operating under charters of five or more years. This right will continue throughout the entire term of the omnibus agreement." (Ownership structure is listed at the bottom of this article.)
(Source: KNOP website)
Distributions/Dividends: One encouraging sign about KNOP's distributions so far, is that they've paid out more than their targeted minimum quarterly distribution - KNOP has a minimum quarterly distribution of $.375, which it has already surpassed, by $.06/unit, for the past 3 consecutive quarters.
Options: Although KNOP does have options, we haven't been able to add any trades to our Covered Calls Table or Cash Secured Puts Table, as its options are very thinly traded, and don't offer very attractive yields yet.
Earnings/Distributable Cash Flow: KNOP has 8,567,500 common units, and an equal number of subordinated units. The subordinated units are owned by Knutsen NYK Offshore Tankers AS (KNOT). KNOP must pay distributions first to its common unitholders, before paying any distributions to the subordinated unitholders.
KNOP ramped up its DCF/unit to a higher, fairly steady level, starting in Q3 2013. On August 1, 2013, KNOP's wholly owned subsidiary, KNOT Shuttle Tankers AS, acquired Knutsen Shuttle Tankers 13 AS, the company that owns the shuttle tanker Carmen Knutsen, from general partner KNOT, for a purchase price of $145.0 million less approximately $89.1 million of existing bank debt.
(In the table below, we calculated EPS, Distributable Cash Flow (DCF)/Unit, and Distribution Coverage on the basis of 17,135,000 total units, just to see how its coverage looked on total number of common and subordinated units... so far, so good.)
Another support for KNOP's future distribution-paying abilities is that, in the event of a chartering customer not exercising its option to extend its initial charter term, KNOP's general partner will pay KNOP an amount greater to or equal to the rate the chartering customer would have paid, had they extended a current charter, subject to certain limitations.
Valuations: Similar to some of the other recent IPOs we've covered, KNOP looks undervalued on a 2014 PEG basis, but analysts haven't ramped up 2015 earnings estimates much over 2014's:
However, given the combo of KNOP's long-term minimum contracted revenues of well over $85M through 2017, AND its prospects to add to its fleet, via dropdowns from its general partner, those 2015 estimates may rise.
(Source: KNOP website)
The $85M-plus future annual revenue minimum figure is significant, in that KNOP generated $81.67M over the past 12 months, up over 21% vs. the "carve-out" figures from the previous 4 quarters. Its EBITDA generation also looked good:
KNOP doesn't look undervalued on these other metrics, except for P/E:
Financials: However, its Management Efficiency and Current ratios look equal to or better than industry averages, and it carries less debt, in addition to having a much higher Operating Margin.
Performance: KNOP is up over 17% since its April 2013 IPO, but it has trailed the market year-to-date, even after moving up over the past trading month.
Ownership Structure: "KNOP is majority-owned by Knutsen NYK Offshore Tankers AS (KNOT), a market leading independent owner and operator of shuttle tankers, which is jointly owned by TS Shipping Invest AS (OTCQB:TSSI), and Nippon Yusen Kaisha (NYK). TSSI controlled by our Chairman, is a private Norwegian company with ownership interests in shuttle tankers, liquefied natural gas (LNG), tankers and product/chemical tankers. NYK is a Japanese public company with a fleet of approximately 800 vessels, including bulk carriers, containerships, tankers and specialized vessels. As of December 31, 2013, KNOT owns a 49% limited partner interest in us and, through its ownership of our general partner, a 2% general partner interest in us, as well as our incentive distribution rights."
(Source: KNOP website)
All tables furnished by DoubleDividendStocks.com, unless otherwise noted.
Disclaimer: This article was written for informational purposes only.
Disclosure: Author owned no shares of KNOP as of yet, at the time of this writing.
Disclosure: The author has no positions in any stocks mentioned, but may initiate a long position in KNOP over the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.