Navios Maritime Partners Is A Rock Solid Way To Play Dry Shipping

| About: Navios Maritime (NMM)


Navios pays a large dividend that I see as sustainable.

Most of Navios’ cash flow is very predictable.

Navios doesn’t need a recovery in the dry shipping market but it can help it potentially enough to allow a dividend increase.

I must confess. I intended this article to be a lesson about high dividend yields and the warning they tend to serve, but in the case of Navios Maritime Partners (NYSE:NMM) they actually look quite secure. At the time of this writing, NMM pays a 9.1% dividend and, much to my surprise, there is every reason to expect that dividend to keep on paying for years to come.

Never mind an expecting recovery in dry shipping rates. NMM's last quarter filing reveals (or reminds us) of some interesting data. For starters, the fleet is quite young and in no realistic danger of having to be scrapped. Next, most of its ships are in fixed charter rates rather than depending on the daily fluctuations of the Baltic Dry Index (BDI) or the daily spot rates.

Source: NMM filings

I count 9 ships with expirations of their contracts coming this year and will be subject to either new contracts or the BDI. None of the most lucrative contracts will expire for many years. Based on today's rates, there is a bit of a relatively small hit coming in overall average rates NMM charges, but even that is only if a dry shipping market recovery fails to materialize. Even it does fail, the positive cash flow should easily continue to be much higher than the dividend. That's the worst case realistic scenario.

As for what seems to be the base case, during the conference call the company seemed extremely optimistic about the dry shipping environment. VP George Achniotis stated,

"The currently planned expansions of global iron ore mines will add significantly to seaborne bulk commodity movements in 2014 with further significant growth in the following years. While the majority of these expansions are in Australia, this year, about 40% will come from the Atlantic Basin adding ton-miles."

This is in line with what many other analysts, executives, and experts have been saying lately. Achniotis also explained that Chinese mines can't compete with the new low-cost global market prices of iron ore which will force further demand for sea shipments. NMM expects further steel consumption demand from China to continue for the rest of this year and beyond along with grain imports.

My conclusion: I intended to write this to criticize NMM based on its high dividend yield. Further reading and analysis instead leads me to conclude that the dividend is sustainable and may actually end up getting raised. CEO Angeliki Frangou stated, "We are here to really create - to create a visible increase on the distribution capability of the company." I now believe her.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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