Huge MLP Profits from the “Greek Goddess building a global shipping empire?”

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Once again today we take a gander at an MLP teaser — this time for the aptly named MLP Profits newsletter ($399, just FYI), with the ad coming in over the signature of Roger Conrad, one of the letter’s editors (Elliott Gue is the other).

And the promise is lusty, as always:

“You may need a bigger mailbox to handle stacks of envelopes stuffed with five-figure distribution checks!

“Short of having a money-printing press down in your basement, investing in publicly traded MLPs is the fastest, safest, tax-free way to grow your money! Start receiving big checks in the mail. Just like clockwork. Every single quarter!”

Just as an aside, I may need a bigger mailbox, too — but it’s not because the checks are so huge (much as I appreciate them), it’s because Gumshoe Manor sits atop a hilly driveway and the local Post Office functionary has determined that he can’t possibly trust his driver to get our packages to the door and somehow navigate the driveway going both up and down. Interestingly enough, UPS and FedEx have no trouble dropping our boxes on the front stoop, which probably tells you only what you already know about the customer service of entrenched bureaucracies.

Anyway, this teaser appealed to me because it was a nice story, and because I know there are lots of yield-focused folks out there in the great armies of Gumshoedom who are interested in ways to spruce up an income flow that’s laboring under ridiculously low interest rates … a need that MLPs often seem designed specifically to address.

If you’re not familiar with Master Limited Partnerships (MLPs), you can probably think of them as something akin to a Real Estate Investment Trust, a pass-through vehicle that allows unitholders (not technically shareholders, since these aren’t corporations) to receive all of the partnership’s income before taxes. They’re a little more complicated than REITs, however, in that they have more confusing filing and taxation rules and they are effectively as much prized for being tax-deferral investments as income investments. That’s because most of the distributions churned out to unitholders of most MLPs are not actually “income” in the strict accounting sense of that word, they’re “cash flow” generated by the business but offset by non-cash expenses like depreciation, so they are treated as return of capital and you don’t owe the tax on it until you sell your units (since the capital is returned, it lowers your cost basis on the units you own) — almost all MLPs pay out far more in distributions than they actually book in income.

I’ve written about this sector many times, so I won’t bore you with more details (ask away in the comments if you have questions, many longtime Gumshoe readers are very experienced MLP owners), other than to tell you that almost all MLPs are in the energy distribution business (pipelines, propane distributors, etc.).

Today’s, however, is different. Here’s how Conrad describes it, after he goes through the story of Aristotle Onassis and the wealth generated by that Greek shipping tycoon and calls the head of our teased company a “Greek Goddess” who might be the next Onassis:

“This beautiful, brilliant superwoman is building what many believe will ultimately be the greatest shipping company in the history of the world.

“The scion of a famous Greek shipping family could see that times were changing. So 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 big fleet of ocean-going cargo ships.

“She acquired one of the oldest and most venerable names in shipping business. This future 40-bagger has existed since the 1950s, when it was the ocean-going shipping arm of U.S. Steel.

“The company is a bulk shipper based out of Greece, running shipments all over the globe. It services the European, Asian and North and South American coasts.”

And we get a little bit more by way of detail about the company …

“The company has a fleet of young and diversified vessels. It boasts an average time of just a bit over 5 years on the open water, minimizing maintenance costs and dock time for repairs.

“With long-term contracts locked in at certain rates, consistent earnings can be expected. The company also has the advantage of booking short-term contracts to ultimately capitalize on real-time fluctuations in bulk shipping rates.”

So … new fleet, and long-term contracts (as opposed to spot rate charters that are more volatile, reflecting ups and downs in the business more quickly).

And, of course, being MLP Profits they probably didn’t have to say this … but:

“This Greek Goddess has structured her shipping company as a publicly traded Master Limited Partnership on the NYSE.”

And remember what I said about high cash flow and depreciation? Apparently ships are just as suited to this as pipelines, per Conrad:

“The shipping business is well suited for Master Limited Partnerships. Operating a tanker or dry-bulk ship with a term contract is much like running a pipeline—the operator faces a large up-front capital outlay to build the ship, but what follows is years of steady, guaranteed cash flows.

“Better still, tanker ships offer a steady stream of depreciation charges that can be passed through to MLP unit-holders. That means regularly scheduled returns of hefty capital payments and lower taxes.”

But then Conrad gets into some aspects of the tease that were, frankly, a bit eye-opening for me — this is stuff I hadn’t heard before, and part of the reason I wanted to look into this one for you today:

“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 any other company taxed as a corporation.

“In addition, this MLP doesn’t generate unrelated business taxable income (UBTI) and is therefore suitable for an IRA or 401(k) account. And this is critically important for investors.”

The ad says that they escape this K-1 hassle (the bane of MLP investors — that’s the partnership income form that you have to use to file your taxes, and they’re almost always late … and different, which gives some investors headaches) because they’ve elected to be taxed as a corporation but are really a MLP. No, I don’t know how this works, something about being a foreign company with no US assets.

And we’re also told that this shipping firm’s long-term contracts (none expiring soon, and no spot rate exposure) are insured by an EU government body of some kind, eliminating the risk that their charters could fall through. And the MLP’s own General Partner has the maintenance contract.

So that actually sounds pretty compelling, right? I thought so too. So I threw all that info into the mighty, mighty Thinkolator and discovered that this must be:

Navios Maritime Partners (NMM)

You may well have heard of Navios Maritime (NM), the parent company that also owns the General Partner of the MLP — they’ve been a publicly traded dry bulk shipper for many years (and do have roots in the old shipping arm of US Steel that brought iron ore up from Brazil, among other things), though this MLP offshoot that owns about a dozen vessels (mostly Panamax dry bulkers, though they have a few of the larger Capesize vessels and one smaller Handymax) on long term contracts is only about three years old (their next charter expiration is about two years off, just FYI). The partnership has done far better than the parent since the split, with less volatility.

And the woman behind this little dry bulk empire is Angeliki Frangou — beauty is subjective and clearly only one small part of Goddess-hood, but if you wish to evaluate that claim here’s a pic of her in an old Tradewinds article. More importantly, you can see the basics of her story, and how she built the company, in the Forbes profile here.

Navios, like many of the dry bulkers, was hit hard by the collapse of that business and the collapse of the financial system — most shippers are highly leveraged companies that rely on constant access to debt to finance their pricey vessels.

And yes, they will send you a 1099-DIV instead of a K-1, which I know would make some of my readers happy. At least, that’s what they say on their tax info from last year. I have no idea what the tax implications of that are, though that link implies that these might be “qualified” dividends for that (maybe soon to end) lower tax rate on dividends.

I don’t know much more about Navios Maritime Partners than that, they do pay a nice dividend that comes in at about an 8% yield right now — that used to be low for a dry bulk shipper, but the big name players like Eagle Bulk (EGLE), DryShips (DRYS), Diana Shipping (DSX) and several others all suspended their dramatically high dividends back in 2008 when their business went to heck.

I did not check into the bit about their charters being insured, I don’t know much about the current state of the shipping biz, and I don’t know where dry bulk rates are going (they have to renew a few charters every year starting in 2012, so they’ll need rates to be stable or rising by then), but I will admit that this one caught my eye and I’m a bit interested, despite the fact that I’ve been shy about the dry bulk shipping business for many years. There could easily be some skeletons in there that I haven’t read about yet, so if you’re familiar with Navios Maritime Partners (or anything else that might be relevant) and want to share an opinion please do so in the handy little box below.

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44 Responses to Huge MLP Profits from the “Greek Goddess building a global shipping empire?”


  1. I've always been fascinated by MLPs and their high yields, but turned off by the tax hassles (K-1's and such that dont come in until late March,etc etc). I have recently come across a few Closed End Funds that are composed of MLP's, and so all the tax hassles go away in exchange for their management fees.

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  2. I agree with layneCPA & StockGumshoe regarding the downside of trading a K-1 for a 1099. If you use TurboTax (or its ilk), the tax filing is not difficult.

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    • Not difficult until you sell the MLP. Then it’s painful because you are paying tax on all the gains that have essentially been deferred. My advice is to buy and keep till death. If you don’t want to deal with the MLPs, you can buy the general partnership (NMM is the MLP, NM is the general partner, same for KMP and KMI) which usually have lower dividends but more potential growth.

      By the way, the article has an informative discussion of NMM: http://seekingalpha.com/article/830441-can-navios-maritime-partners-sustain-its-double-digit-dividend-yield
      Here’s the final paragraph:
      A final word on the Navios Partners dividend. The company has elected to be treated as a corporation for U.S. tax purposes — no income is generated in the U.S. — so dividends are reported on a Form 1099 instead of the more typical K-1 for a MLP. Also, about 60% of each dividend has been classified as qualified dividends and the other 40% as non-dividend distribution. This MLP stock would be a suitable IRA investment.

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    Does anyone knows which stocks they are talking about?

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  4. any idea what is the stocks mention in extreme value newsletter?

    ——
    I just recommended two oil and gas producers in the current issue of Extreme Value. One is primarily an oil sands company, and the other is primarily a natural gas producer. Both have more undeveloped reserves off their balance sheets than developed reserves on. The companies say they'll double their production within five years. Most natural gas companies would have to go shopping for more land to fulfill that promise. But these two companies don't need any more land. Each has several years of production locked under the ground in massive North American land positions.
    ——-

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  5. I have had several MLP's the last 2 years trading with Fidelity and they have always shown the dividends as "Return of Principal" and the dividend does not show in my list of dividinds received.

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  6. interesting – however just about everybody is predicting that fuel oil prices will increase dramatically and that´s going to hurt badly in the shipping business. If you have fixed long term contracts, I guess you cannot increase the rates to cover the higher fuel oil costs – so it´s risky and these bulk carriers burn huge amounts of fuel each day. This is something to take into consideration before investing into shipping

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  7. Owned NMM a year ago & was content with it. Went double short the Euro (EUO) in January & increasingly felt uneasy about Greece-thus selling NMM for a gain. Have since taken a position in Eagle Bulk Shipping (EGLE) which, though it lacks a dividend, I feel much more comfortable with. Tax wise the 1099's a snap. Once had a client with Permian Basin (PBT), and who collected MO dividends of six digits annually, and who reinvested each PBT distribution—let's just say that the largest component in my price for their tax return was PBT, having to make countless calculations & researching the activity each year. Navios strikes me as well managed & will benefit from the hauling of commodities into China & India.

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  8. I guess we have to cherish our postmamsell "Bonnie" even more for driving her own 4WD to navigate not only our driveways but first of all the public roads of northern PA to live up to the mantra of the Postal Service even on days when UPS is mysteriously absent.
    In regard to the K1, after trying in vain for years to divine its spirit, I now simply move the figures to the corresponding boxes on the TAXACT software (the federal form of which is free) when there is a corresponding box, and forget about the rest, and this seems to sail though, probably helped by the fact that any tax auditors wouldn't know any better either.

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  9. Why mess around with shipping stocks which can be very volatile. Go with US pipeline companies like MMP or EPD, etc. They pay a good dividend with a fairly steady increase in share price.

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  10. The picture of the lady struck me as a person keeping within the standards of appearance of the part of the world in which she dwells. Bring her to New York or Los Angeles and do a serious make-over and she would probably be amazing, a real "Greek Goddes by the standards of American men.

    NMM might suffer from the price of oil in North America and profit greatly from the increasing demand in China and India. "America" is trying very hard to be left in the world's wake in a lot of ways and may no longer matter anyway.

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  11. I subscribe to MLP Profits and back in April Roger Conrad decided to take take profits on NMM and recommended selling half of position on basis that company hadn't raised distribution in a while. In the last six months there have been no further substantive comments on NMM – until I got the missive in question touting the merits of the greek goddess' shipping company. If he's changed his mind about NMM he certainly hasn't let this be known to his subscriber base.

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  12. Enhanced K-1 reporting rules & the supplemental paperwork tell you quite clearly where to report each & every K-1 entry. Intuit software handles the related tax forms (4797, 8582, e.g.) very well. KISS in regard to the related states where operations are conducted — look at each state's reporting requirements & you'll conclude that a tax return for each non-domicile state isn't even required.

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  13. I have subscribed to MLP profits and I still don't know what water transportation co
    you are talking about

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  14. I just received a very similar Roger Conrad email “12.8%-yield Greek shipping goddess is your safe-haven investment” today, touting the same thing.

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  15. I owned a lot of shipping stocks but took my losses and got out of them except for Navios Maritime which I bought 1000 shares for $3.00 and have not looked back….until now. I am thinking of selling and buying NMM, the MLP for the tax reasons. I am heavy into MLPs mostly the midstream (pipelines). I am not fond of the Exploration and production end nor the refineries. The pipelines are the “steady Eddies” which I take a lot of comfort in. My accountant does my takes so the K1′s are not an issure. The fact that they come late is livable.

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  16. Conrad et al are pushing Navios again. I bought it after it had corrrected 20% and got good total return. However, I sold it recently because of confluence of events. The Dry Bulk Shipping Index plummeted recently, supposedly because shippers had purchased too many new ships, many of which were lying idle, thus jeoparadizing new contract prices. Indeed, Navios’ projected earnings for next year are down. This combined with a slowing in Asia, made me concerned, so I sold. Miss that yield though.

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  17. I own NMM, Navios Maritime Partners, A great dividend, over 12% currently. I own several MLP investment’s directly, and two MPL funds to cover the entire sector. Early 2013 I noticed the MPL fund manager’s were buying NMM into their top 25 holdings, even though the shipping industry overall had reached a bottom cycle for the last two years. My view, it’s turning back up, and a value BUY at this time. Kayne Anderson Capital supports 4 MPL Funds, and I consider them an insider into the MLP universe with adept insight into key MPL section movements. One of the best MPL fund manager’s in the business, I own their Mid-stream fund KMF. I make single buy’s of MLP’s listed in their holdings, especially when they take a big new position, or add shares. Navios Maritime Partner’s, MLP (NMM) has been added to several of the MPL funds this year. Follow the money, and following their buy’s has paid off big on several MPL’s for my portfolio. Mark West Energy, (MWE) was a home run I got in early over a year ago from following Kayne Anderson buy’s. GLTA

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  18. There is now also a "real" ETF for the Alerian MLP index (ticker AMLP), though like the closed end funds (which all have huge expense ratios, in my opinion) you lose at least some of the tax advantage of owning MLP units (tax deferral). And the ETF apparently has some fee/tax issues of its own according to this guy: http://seekingalpha.com/article/235062-alerian-ml… , though I haven't looked at it yet myself.

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  19. Dunno what they're peddling, but sounds like getting a fantastic pizza for $9, with a $20 delivery charge.

    I'm always suspicious when some wants so much for information that I have to more than triple my money to break even.

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  20. No — but why in the world would you place a tax preference vehicle in a tax-free account? Give a look at Tortoise Energy Infrastructure (TYG), a closed end fund & Cheniere Energy Partners (CQP) to use in a non-pension account. If you're looking for funding vehicles for a Roth, why not consider residential mortgage backed securities REITs, such as AGNC & CIM, yielding 19.49% & 16.55% respectively?

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  21. Great post. Thanks boulderite and Stanislav. I've got my 10 foot pole out.

    What I'd like to know is why a supposed reputable guy like Conrade would be promoting this.

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  22. Everyone talks about the value of putting off paying taxes via the K1 being a good thing. What about paying the piper down the road when your tax basis gets lowered and the boom also gets lowered. NOthing is for free… you're just putting off the pain. Having said that, my portfolio is overweight in Linn Energy, so I'll be paying the piper down the road. My investment is in a taxable account, for those using an IRA it's different.

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  23. Yes it does ! If an MLP is registered as a Corporation it must pay corporate tax. Doing so reduces the amount of cash remaining to pay out as dividends to your ROTH account. However, if an MLP is registered as a Partnership, it pays no tax because you are expected to pay the tax when you file with the IRS. But when you do file, owing to the ROTH protection, the tax on your dividends is ZERO. So you are better off with an MLP that is registered as a Partnership. Check out the MLP’s registration before investing.

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