Navios Maritime Partners: Buy the Dip

 |  Includes: NM, NMM
by: Mike Maher

Navios Maritime Partners L.P (NYSE:NMM) is a master limited partnership that owns and operates dry bulk ships. Its parent company, Navios Maritime Holdings (NYSE:NM), formed the partnership in 2007 and still holds a 28.7% stake. The partnership currently has a fleet of five Capesize, 10 Panamax and one Ultra Handymax dry bulk carriers, for a total of 16 ships. The partnership's fleet has an average charter coverage of 4.6 years, and the ships have an average age of five years. Navios is actively growing its fleet, receiving five dropdown vessels from Navios Maritime Holdings in 2010, and is raising money to further expand. NMM's most recent distribution was $0.43 per unit, for an annualized distribution of $1.72. Based on units closing at $20.67, shares are yielding 8.3%.

Distribution growth has followed a slow and steady approach for the last 12 quarters, increasing seven times in that period. While increasing distributions are always a plus, several of those raises were for half a penny per share, so the distribution is inching up, not jumping. With the quarterly distribution now at $0.43 a quarter, it has increased nearly 23% from the $0.35 paid out in Q1 and Q2 of 2008. The partnership is still actively expanding, so investors should continue to see growth in distributions as Navios adds new ships to the fleet.

NMM's conservativeness regarding the distribution growth is also evident in the distribution coverage ratio. The partnership reported a coverage ratio of 1.24x in the fourth quarter of 2010, a very high number. This large cushion not only provides a safety net for the distribution, but also allows the partnership to retain cash to help expand the fleet. In addition, the high coverage ratio allows room for the distribution level to grow faster than the partnership's overall growth, should Navios decided to bring the coverage ratio down in the coming quarters.

Units in the partnership are dropping over 5% in after hours trading, after Navios announced plans to sell 4 million units. The funds raised will be used to expand the fleet, and well as for general purposes, according to the news release. As is true with most MLP offerings, the drop provides an opportunity to get into this high-yielding MLP on a dip, and at a higher yield.

With day rates on the Baltic Dry Index very depressed, Navios Maritime Partners has been able to increase the distributions to unit holders, and is taking advantage of the oversupply of ships by expanding its fleet. Supported by a 8%+ yield and increasing distributions, units of NMM are worth a look on the offering.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in NMM over the next 72 hours.