In an industry and market segment that almost collapsed entirely five years ago, the Navios Maritime Partners LP (NYSE:NMM) business model has allowed the company to continue to pay investors a large and growing - slowly - dividend. However, a significant portion of the Navios Partners fleet comes off lease between now and the middle of 2014, putting the big dividend payments at risk.
Premium Dry Bulk Shipping Company
Navios Maritime Partners own 23 Ultra-Handymax, Panamax and Capesize dry bulk ships and has two additional chartered-in dry bulk vessels for a total fleet of 25. The ships are leased out on long-term contracts. Navios Partners was spun-off by Navios Maritime Holdings (NYSE:NM) in November 2007. Navios Maritime Holdings controls 123 vessels, of which 83 are dry bulk. The company holds a 23.4% stake in Navios Maritime Partners.
One of the strengths of Navios Maritime Partners has been the company's opportunity to cherry-pick the best vessel lease contracts and opportunities developed by Navios Maritime Holdings. When the spot dry bulk shipping rates in the collapsed in 2008, Navios Partners book of long-tern contracts allowed the company to maintain its dividend and continue to increase the payouts by picking up drop-down assets from Navios Holdings.
Compare the charts below of what happened with the Baltic Dry Index over the last 10 years and the Navios Partners share price and dividend rate.
Half of Fleet Contracts Soon to Expire
During the 2013 fourth quarter Navios Maritime Partners enters a 9 month period of time that, in my opinion, will determine whether the company will be able to maintain the current dividend rate. Between now and July 2014, the contracts on 12 of the company's 25 vessels will terminate. The on a quarterly basis, four expire in the 2013 fourth quarter, four in the first quarter of 2014, three in the second quarter and one in July 2014. After that, no vessels come off contract for over a year. The contracts expiring between now and next July represent about 44% of Navios Partners' daily charter rates, not including any profit sharing included in the contracts.
This chart shows the current lease rates, so as the company makes it's reports next year, we can refer back here to compare new rates with what the ships were previously earning.
Baltic Dry Index Starting to Rebound
When I went through the second quarter earnings information and started to write this article, my first impression was that Navios Partners would be challenged to sign contracts with acceptable lease rates to maintain enough cash flow to support the dividend. During the second quarter conference call, management was more positive, noting that leasing rates were increasing and that ships with expiring contracts and four new vessels acquired during the quarter would be put to work at attractive daily rates.
While it is management's job to be positive about the futures, what really turned my opinion around is the recent jump in the Baltic Dry Index. The tracking value of dry bulk shipping has nearly doubled since the second quarter earnings conference call, validating management's comments that the market for dry bulk rates is improving.
Income Investors Can Count on the Dividend - For Now
Another important fact covered in the second quarter conference call was the company's assertion that investors can expect to receive the current dividend rate of $0.4425 per quarter through at least the end of 2014. At the current share price of $14.60, the $1.77 per year is good for a 12% plus annual yield. With the current cash flow, the dividend is well covered. In the second quarter free cash flow - what Navios calls operation surplus - was $40 million and the dividend payments totaled $29 million. More importantly, the 5 or 6 quarters of steady dividends allow investors to wait and see what happens with the new ships and lease expirations during the 2013 third and fourth quarters. If the company can show new contract results at attractive rates, Navios Maritime Partners will remain as a great double-digit yield choice for income investors.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.