How Navios Maritime Partners Tops DryShips and Diana Shipping

Navios Maritime Partners (NYSE: NMM  ) will release its quarterly report on Thursday, and shareholders have been amazed at the ability of the shipping master limited partnership to sustain double-digit dividend yields. Yet given the tough conditions in dry-bulk shipping that have brought tough times even for industry giants DryShips (NASDAQ: DRYS  ) and Diana Shipping (NYSE: DSX  ) , will Navios earnings be sufficient to keep the MLP's distributions afloat?

Navios Maritime Partners is part of a somewhat complex corporate structure, with Navios Maritime Holdings (NYSE: NM  ) owning a nearly 20% stake in the MLP. With more than 20 vessels in its fleet, the MLP operates throughout Europe, Asia, North America, and Australia, offering shipping on demand as well as making its vessels available for medium- and long-term charters. Yet with DryShips and Diana Shipping having had difficulty getting through the glut of shipping capacity that has plagued the whole industry, how has Navios managed to do so well? Let's take an early look at what's been happening with Navios Maritime Partners over the past quarter and what we're likely to see in its report.

Stats on Navios Maritime Partners

Analyst EPS Estimate

$0.14

Change From Year-Ago EPS

(61)%

Revenue Estimate

$45.08 million

Change From Year-Ago Revenue

(18.8)%

Earnings Beats in Past Four Quarters

3

Source: Yahoo! Finance.

Can Navios Maritime Partners keep outpaying Diana and DryShips?
In recent months, analysts have cut their views on Navios Maritime Partners, reducing third-quarter estimates by $0.03 per share and full-year 2014 projections by more than double that. Yet the MLP units have still posted modest gains of 3% since late July.

For years, shipping companies have faced rock-bottom levels on the Baltic Dry Index, which measures shipping rates. Yet Navios Maritime Partners fared relatively well in its second quarter, with revenue coming in more than 4% higher than investors had expected on roughly flat net income. With a breakeven point of about $8,600 per day, Navios managed to outduel Diana and DryShips by staying profitable. By contrast, DryShips suffered losses of $18.2 million in the second quarter, while Diana reversed a year-ago profit to lose $5.2 million in this year's second quarter.

As bad as shipping has been over the years, the Baltic Dry Index has tripled since the beginning of 2013. High demand from Asia for coal and iron ore has boosted shipping volumes, and the resulting price stability has helped Navios and its peers. DryShips believes that rising rates mark a long-term turnaround for the industry, and Diana Shipping has also benefited from huge gains in demand that have value investors finally looking seriously at the space.

Still, many companies have had to go into the market for more capital. Last month, Navios said it would sell 5 million units in order to raise cash to expand its fleet or for other purposes. Given the fact that its current distribution exceeds its net income, Navios might well have to use part of the proceeds merely to keep its dividend rate intact. For its part, DryShips made an unusual arrangement that allows it to take advantage of rising share prices on demand, holding back on sales until the company decides conditions are best.

When Navios Maritime Partners reports, watch to see whether the company's income manages to keep pace with its distribution payouts. In the long run, an earnings shortfall will mean more dilutive share offerings in the future unless Navios can grow enough to support its dividend.

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  • Report this Comment On October 29, 2013, at 2:30 PM, imacg5 wrote:

    It's really quite simple how NMM managed to keep paying a dividend, and continue to have healthy earnings.

    It's called "drop downs"

    NMM is a spin off from NM.

    Angeliki Frangou is the CEO of both companies.

    And NM continually sold the ships with the most lucrative long term charters that NM had in it's fleet, to NMM. And NMM paid a premium for those ships, because of the accompanying charters.

    About now, NM only has one more ship that has a lucrative charter attached, if they should chose to sell it to NMM.

    But most of the charters that NMM got originally are coming to an end, and the new charters will not be as good, so realistically, it will be hard for them to continue with the high yielding dividend.

    It would appear that NMM was set up to be a vehicle to provide dividends to NM, and all other shareholders, with the hope that those charters would last through the lousy shipping environment, until things turned around. But period charters have not risen significantly through all sizes.

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