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Navios Maritime Partners, LP (NMM)

This Greek shipping partnership transports dry bulk cargo such as grains, coal, ore, and cement to destinations throughout the world. I added Navios Maritime Partners LP (NMM, NYSE) to the “Ultra High-Yield” Portfolio in December 2009 at $14.44. It has since paid $1.25 in per unit distributions and the price has jumped for a solid 30% total return in just about ten months. ...

NMM has been able to generate strong total returns since being added to the portfolio because its earnings have been stellar. In the first half of 2010, revenues increased 45% from the year- ago half to $62.3 million. Operating surplus (a gauge of cash flow which adds back noncash items like depreciation) jumped 137% to $52.2 million over the same period. Navios was able to generate stronger earnings because of acquisitions. The company acquired five new vessels since June 2009 that have already been put to work accreting to earnings. ...

Navios pays quarterly distributions which were raised to $0.42 per unit August from $0.415. At the current rate, the MLP [master limited partnership] yields a sky high 9.5% at today’s price ($1.68/$17.62). Although Navios is organized as an MLP, it has elected to be treated as a corporation for tax purposes. That means holders receive a 1099 instead of the more complicated K-1. In 2009, 100% of distribution income qualified for the 15% reduced tax rate. The 15% dividend tax rate is set to expire at the end of the year. For higher income brackets, the dividend tax may increase to 20%. However, Navios can also be held in a tax-advantaged account. Distributions of $33 million were well covered by operating surplus of $52 million in the first half. The company also has manageable debt of $271 million which is about 73% of partners’ capital. Bloomberg estimates the partnership will earn $1.43 per unit in 2010, which means that Navios is selling at just 12 times 2010 earnings. That’s about on par with the S&P 500, but considering the shipper carries a yield that’s almost 5 times higher than the benchmark index, its shares are attractively priced.

Action to Take

Navios has rock solid earnings and a secure 9.5% yield. Even after having returned 30% since being added to the portfolio, the MLP sells at a reasonable price and is a still good choice for investors looking for predictable income with moderate growth.

Carla Pasternak, High-Yield International

Chloe Lutts Jensen is the third generation of the Lutts family to join the family business. Prior to joining Cabot, Chloe worked as a financial reporter covering fixed income markets at Debtwire, a division of the Financial Times, and at Institutional Investor. At Cabot, she is a contributor to Cabot Wealth Daily.