Looking forward into the future, Navios Partners has contracted out almost 88% of its available days for 2013, as well as almost 50% for 2014, and 40% for 2015. This translates into a revenue stream of around $174 million for the remainder of 2013. For the next two years, the fleet’s average contractual daily rate is substantially higher than the current rate. Therefore, the firm anticipates a steady rise in cash inflows, which will allow it to sustain its dividend policy.
What about the rest?
Navios Partners competes directly with DryShips Inc. (NASDAQ: DRYS) and Diana Shipping Inc. (NYSE: DSX). Neither of these two companies pays dividends.
DryShips, once a pioneer in the space, has failed to enhance shareholders’ value. Over the past five years, it underperformed the market and most of its peers by losing over 90% of its value. At the moment, the stock is trading around 47% below its 52-week range of $3.18. Despite its attractive valuation metrics, investor sentiment is negative about its future prospects mainly because of its large debt pile. DryShips is one of the most heavily indebted companies within the industry. However, it has been steadily diversifying its cash flow stream through its 65% ownership stake in the offshore driller Ocean Rig UDW Inc (NASDAQ:ORIG). In the medium term, DryShips could benefit from the sound demand trends in the offshore drilling business.
On the other hand, Diana Shipping has one of the strongest balance sheets in the space. Its current ratio stands at 8.09, and its debt-to-equity ratio is way below the industry’s average same variable. The company’s solid cash position has prompted an aggressive growth policy. Diana Shipping is taking advantage of the bottom-low levels of new buildings’ prices aiming to achieve enhanced returns from an industry rebound.
Diana is possibly Navios Partners’ strongest rival. Both companies perform similar growth strategies and hold a solid position within the market. However, fundamentally, Navios Partners is ahead of its peers, with margins that emphasize its effective management and prospects for profitability.
Bottom line
To sustain dividend growth, a company needs healthy cash flows. The recessive economic conditions and the resulting slump in global demand have negatively impacted shippers’ earnings. However, Navios Maritime Partners managed to survive four consequent years of market turbulence. At the same time, it remained focused on rewarding its longtime shareholders with juicy dividends. Overall, I strongly believe that the firm is well-positioned to benefit from an industry recovery. Once supply and demand trends start to move toward equilibrium, I think Navios Maritime can emerge as a winner.
The article How Safe is This Shipper’s Massive Dividend? originally appeared on Fool.com and is written by Fani Kelesidou.