Golar LNG Partners LP: Little-Known Stock Offers a Yield of 31.3%
Ever See a Yield as High as This?
I was browsing through dividend announcements the other day. And frankly, most of them don’t seem that generous. Because the stock market has been enjoying a prolonged rally, the rising share prices have made even the well-known dividend payers look stingy in terms of yield.
But then I saw Golar LNG Partners LP (NASDAQ:GMLP).
On January 28, Golar LNG Partners announced that its board of directors declared a quarterly cash distribution of $0.4042 per unit. The distribution is payable on February 14, but only to unitholders of record as of February 7. (Source: “Golar LNG Partners LP Cash Distributions,” Golar LNG Partners LP, January 28, 2020.)
With GMLP stock trading at $5.16 apiece as of this writing, its quarterly cash distribution translates to a staggering annual yield of 31.3%.
That’s right. We live in an era when a 10% yield is often considered too good to be true. Yet this particular company—which most people probably have never heard of—is offering a yield that’s above the 30% mark.
Inevitably, it leads us to ask the question: can Golar LNG Partners afford its payout?
Golar LNG Partners LP owns and operates a fleet of liquefied natural gas (LNG) carriers and floating storage regasification units. Structured as a master limited partnership (MLP), GMLP reports something called distributable cash flow.
To see whether an MLP’s payout is safe in a given reporting period, all you need to do is compare its distributable cash flow to its actual cash distributions.
Golar last reported earnings in November 2019. The report showed that, in the third quarter of 2019, the partnership generated $33.6 million of distributable cash flow, representing a 5.1% increase sequentially. (Source: “Interim Results for the Period Ended September 30, 2019,” Golar LNG Partners LP, November 26, 2019.)
During the quarter, GMLP declared total cash distributions of $28.6 million to its unitholders. As a result, its distribution coverage ratio was 1.18 times.
In other words, the MLP generated 18% more cash than what was needed to fulfill its distribution obligations.
Looking further back, we see that, in the first and second quarters of 2019, Golar LNG Partners’ distribution coverage ratios were 1.01 times and 1.12 times, respectively. (Source: “Third Quarter 2019 Results,” Golar LNG Partners LP, last accessed February 7, 2020.)
While Golar’s fourth-quarter results are yet to be released, in the company’s previous earnings conference call, management said they expect its fourth-quarter distribution coverage to be “approximately in line” with the third quarter. (Source: “Golar LNG Partners LP (GMLP) CEO Graham Robjohns on Q3 2019 Results – Earnings Call Transcript,” Seeking Alpha, November 26, 2019.)
That sounds pretty good, right? If the MLP meets management’s expectations, it would essentially have outearned its distributions in all four quarters of 2019.
Will Golar LNG Partners LP Keep Paying Oversized Distributions?
Nevertheless, I wouldn’t call GMLP stock a slam dunk for income investors. The reason is that the partnership is currently looking for structural opportunities to optimize the value of its assets.
As a matter of fact, in the company’s latest distribution announcement, Golar LNG Partners said the following:
This activity includes potential structured transactions to grow the Partnership as well as bond and bank debt refinancing whilst also continuing to pursue opportunities for redeployment of the Golar Spirit and Golar Mazo. Future dividend levels and growth prospects will be determined by the relative success of these activities including the level and terms of new financing and growth capital requirements.
(Source: Golar LNG Partners LP, January 28, 2020, op. cit.)
Therefore, the current distribution rate is not carved in stone. Golar LNG Partners expects to complete the evaluation of its structure and strategy in the next three months. By then, we’ll see if this ultra-high yielder can still offer a jaw-dropping payout.