Navios Maritime Partners L.P. (NYSE: NMM) began the year at $19.12 per share and currently sits just over $17 a share at the time of this writing. Add back the $1.33 per share in paid cash dividends, and the stock would be around $18.50, still a dismal return. The dividend yield remains an attractive-looking 9.1%, but so far it seems like this hasn't impressed investors.
What's wrong?
For starters, a dividend is only as good as a company's ability to pay it long term. Last quarter, for instance, the company paid a $0.4425 dividend, yet only earned $0.37 per share. And more than half of that $0.37 per share was in the form of an insurance settlement rather than from operations. Navios Maritime has only committed to pay out the dividend through the end of 2015, which is no longer that far off.
According to Navios' filings, a number of its Panamax ships have fixed-rate contracts that recently expired, and others are also expiring this year. With the daily spot rates hovering around $6,500 and the contracts being, on average, nearly twice that, some of Navios' revenue and income stream is threatened unless the spot rate rises.
Where's the rate rally?
Executives at Navios, and across other public dry shipping companies, have been calling for a sustained rally in shipping rates all year long. So far, those forecasts have failed to materialize. For example, daily spot rates for Capesize ships and Panamax ships are down significantly, by more than half compared to a year ago. Even the normal seasonal September rate jump hasn't happened yet.
Many public dry shipping companies are down for the year, some of them significantly, so Navios shareholders should probably feel fortunate to be near break-even. CFO Efstratios Desypris stated on the most recent conference call, "Our consistent strong financial performance health coverage ratio and accretive acquisitions enable us to secure distributions, and we remain committed to a minimum annualized distribution of $1.77 per common unit for 2014 and 2015."
Desypris also added, "On the drybulk vessels, we feel that we have positioned the company well to take advantage of the improving market." One obvious catch for investors: We need to actually see an improving market. In the meantime, Desypris says Navios is an "efficient low cost operator ... benefiting from the economies of scale" with low fixed operations costs.
Delayed but not canceled
EVP George Achniotis reiterated on the earnings call that there's a coming rate rally primarily from increased iron ore supply coming online from Brazil especially and increased shipments to China. Domestic production within China is of low quality and high cost, forcing the country to turn to higher-quality foreign supplies that are cheaper, which means more seaborne shipments.
China is injecting economic stimulus into its five largest banks, which should help secure the liquidity needed to increase orders of iron ore. BIMCO Chief Shipping Analyst Peter Sand told Hellenic Shipping News, "From a shipping perspective, the news emerging from China is comforting. The industry depends on solid economic growth from China. Authorities have now made sure that liquidity will not be an issue in near term."
It sounds great, but the stock price of Navios appears to be at a standstill until the forecast fundamentals actually shift into tangible results in the form of higher shipping rates. Higher rates will secure higher earnings for Navios and should give the Street more confidence in a sustained dividend -- and possibly a higher stock price.
