I thought that Big Yield Hunting had disappeared as a newsletter, but apparently not — this letter is put out by the Investing Daily folks, and it had been the baby of Roger Conrad since inception, but when Conrad left for other pastures I stopped seeing the big teaser pitches for “Big Yield” picks.
Until today, at least — today this popped up in my inbox:
“My Big Fat Greek Dividend
“In 2004, a woman left her family’s shipping business, set up her own company, raised three-quarters of a billion dollars from banks and investors, and went on a shopping spree for a fleet of ocean-going cargo ships.
“Today this Greek Goddess is a global shipping leader. Raw materials producers, agricultural traders and exporters, industrial end users, ship owners, charterers, brokers and agents all rely on her expertise and innovation.”
And yes, though I had thought we were past the “Big Fat Greek Wedding” references (it’s been 11 years now) this one did spark my memory — because back before Big Yield Hunting existed Roger Conrad had started to tease us about a “Greek Goddess” and her high-yielding shipping company for one of his other newsletters, the pricier MLP Profits (and that ad ran for a year or two, intermittently).
So is it still the same MLP that Conrad’s successors are teasing? Well, we’ll get into the details for you but the short answer is “yes.”
Here’s how the new editors of Big Yield Hunting, Ari Charney and Khoa Nguyen, describe it:
“Thanks to the ‘next Onassis,’ you could be depositing some big checks very soon. We’ve found a way to pocket 3 times the yield of AAA bonds and 6 times the yield of CDs… and pay almost zero in taxes….
“This brilliant scion of a famous Greek shipping family is building what many believe will ultimately be the greatest shipping company in the world.
“In 2004, she left her family’s shipping business, set up her own company, raised three-quarters of a billion dollars from banks and investors, and went on a shopping spree for a fleet of ocean-going cargo ships.
“She acquired one of the oldest and most venerable names in shipping business—a bulk shipper started in the 1950s as the ocean-going arm of U.S. Steel.
“The company is based out of Athens, running cargoes all over the globe. It services the European, Asian and North and South American coasts.
“The goal of this headstrong Greek Goddess is to transform what was once a family-run cowboy culture into a modern, professional and corporate way of doing business.”
And yes, it is a MLP — though it’s a bit of a different type of one … here’s how they put it:
“While this Greek Goddess’ shipping company is technically an MLP, it has elected to be taxed as a C-corporation for U.S. federal income tax purposes.
“But it has no assets or revenues in the United States, so it’s not subject to U.S. corporate income taxes. That means its C-corp tax election has no real impact on its tax liability.
“The real advantage here is that this particular MLP doesn’t report distributions on a Schedule K-1, unlike most other partnerships. Instead, the company reports on a standard Form 1099, just like a corporation. K-1s can be a headache at tax time—even for professional accountants—so this is a real plus.
“In addition, this MLP doesn’t generate unrelated business taxable income (UBTI) and is therefore suitable for an IRA or 401(k) account. This is critically important for retired investors.”
So yes, we don’t even have to shovel the snow off the ol’ Thinkolator to tell you that yes, this is still Navios Maritime Holdings (NMM — click here for a free trend analysis). And yes, it’s a high-yielding shipping MLP that has a distribution of about 10.7%. Actually, the yield is down to about 10% now, since the stock has popped up a dollar to $18 in the last few week or so on an upgrade, some ship deliveries, and a little wave of optimism about 2014 charter rates.
NMM has been pretty solid over the years, certainly compared to its parent Navios Maritime (NM) and to most of the other dry bulk shippers most investors have heard of, like Diana Shipping (DSX) or DryShips (DRYS), but that also means it has not spiked up like some of the others have in the last year or two as the economy has improved — they are designed to be a bit more sober, with no exposure to short-term spot-rate charters and with a focus on long-term charters that create predictable cash flow, so with charter rates improving a bit as the economy improves their stock hasn’t reacted as violently.
But really, if you’re looking for violent spikes then you probably aren’t looking for 10% yielders — clearly, all of the profits and most of the cash flow are flowing out the door to unitholders of the MLP, this isn’t a growth stock that’s reinvesting heavily in new projects.
That’s not to say they’re not growing, but growth in the shipping business is capital intensive so growth for a MLP either means they’re selling new units (diluting shareholders) to buy new ships, or they’re taking on more debt — which is fine to a degree, and it does mean that they can improve operations and even improve per-share cash generation if they’re well run, but you don’t get dramatic growth that way. If the stock price is going up, it’s usually because people are less worried about the business and are therefore willing to accept a somewhat lower income yield. NMM has paid a dividend since they were created in 2007 or 2008, but they have raised it only very, very gradually — it was 42 cents per quarter back when I covered Conrad’s tease of this pick three years ago, and it’s 44.3 cents per quarter now.
It’s been several years now since pundits on CNBC were all hot and bothered about the Baltic Dry Index, the benchmark index for dry bulk shipping rates. Demand for these giant bulkers was driven by China’s insatiable demand for coal and wheat and iron, and several of the shipping company stocks were market darlings as they drove charter rates higher and higher and they invested more and more into new capacity, but when the global economy hit a muddy patch the demand slacked off quite a bit just as all the new vessels these companies had ordered came out of the shipyard. It was an old-fashioned shakeout, the kind that seems endemic to the highly cyclical shipping industry … but now dry bulkers are getting popular again, and with folks like billionaire investors Wilbur Ross getting into the game investors have started to pay attention and wonder whether they can get in early on the next boom cycle.
NMM is not going to be the most exciting play of any potential boom, but, well, a rising tide of higher day rates would, I suppose, lift all the ships. And given the history of the sector, the downside is likely to be less pronounced for NMM than for the more volatile dry bulk shippers. They also did assuage some investor fears about possible distribution cuts by buying into a fleet of container ships that have very long (10 year) charters to help ensure their future cash flow and diversify the business a little bit. And though they do have some capacity that’s not yet chartered for next year, and analysts are predicting lower earnings next year than this, they do have a decent-size fleet of 25 or so ships and most of them are relatively new (and therefore more desirable) and under contract for several years — you can see their fleet information here.
If you’d like a bit more detail on NMM, the new editor of MLP Profits, Igor Greenwald, posted a public piece updating his opinion on this MLP last month (hint: he still likes it), and presumably his assessment is fueled by the same research going into the recommendation by Big Yield Hunting (they’re from the same publisher). I don’t know if this will be a spectacular play going forward, but it does seem that the odds of them keeping the distribution at this level have improved — and if you can get a steady 10% tax-advantaged yield, well, there’s not a lot of room for complaint.
So what do you think? I don’t own this one and that’s not likely to change anytime soon, but I know many Gumshoe readers rode the last wave of dry bulk shipping stocks (hopefully successfully) and there are probably a few experts on this “Greek Goddess” out there in Gumshoedom — if you’ve got an opinion to share, feel free to shout it out with a comment below.
If not, just click here...