KNOT Offshore Partners Offers 10% Dividend Yield (KNOP)

KNOT Offshore Partners LP (NYSE: KNOP) has been rewarding its shareholders with steady dividend income and currently offers a substantial 10% yield.

Despite a small share price decline over the past 12 months, KNOP has been on a long-term uptrend since January 2016. Moreover, the company’s fundamentals are solid, and the share price drop had the effect of driving the dividend yield into double-digit-percentage levels. KNOP’s current yield is the fourth-highest yield in the Shipping market segment and significantly higher than the average yield of the entire Services sector.

While fears of a trade war and a global economic slowdown have caused the shares to drop during the recent market sell-off, KNOT Offshore Partners has exceeded analysts’ expectations over the last three quarters. Should the economy begin to grow at a faster-than-expected pace, the company should be in a good position

Gross Output (GO), the top line of national accounting that measures spending at all stages of production, accelerated significantly in the fourth quarter of 2017. An increase in GO is genrally a good  indicator that the overall economy should continue to expand for the remainder of 2018. Mark Skousen, the creator of the GO concept, stated that “The latest GO data indicates that business investment and spending took off in the 4th quarter, probably as a result of the business tax reductions passed by Congress in late December 2017. The new tax breaks and deregulatory environment are likely to stimulate further economic growth in 2018, barring international tensions and trade wars.” An expanding economy generally increases energy demand, which would increase demand for KNOT Offshore Partners’ services.

KNOT Offshore Partners will distribute its next dividend on company’s May 17, 2018 pay date to all its shareholders of record prior to the May 1, 2018 ex-dividend date.

KNOT Offshore Partners LP (NYSE:KNOP)

Formed in February 2013, KNOT Offshore Partners LP acquires and operates shuttle tankers under long-term charters, which are defined as being five or more years in length. The partnership’s main sponsor, Knutsen NYK Offshore Tankers AS — which is jointly owned by TS Shipping Invest AS (TSSI) and Nippon Yusen Kaisha (NYK) — is an independent owner and operator of shuttle tankers. TSSI is a private Norwegian company with ownership interests in shuttle tankers, liquefied natural gas (LNG) tankers and product/chemical tankers. NYK is a Japanese public company with a fleet of approximately 800 vessels, including bulk carriers, container ships, tankers and specialized vessels. As of December 31, 2017, KNOT Offshore Partners owned and operated a fleet of fifteen shuttle tankers equipped with advanced technology, including dynamic positioning and offshore systems. The partnership’s vessels operate under long-term charters with major oil and gas companies engaged in offshore productions, including as Shell and ExxonMobil.

For some investors, the most attractive element of KNOP will be its 10% dividend yield. Currently, the $0.52 quarterly payout is equivalent to a $2.08 annualized dividend distribution. After raising its annual dividend for the first three years of its existence, the company has maintained a steady $2.08 total annual dividend since 2016. In terms of percentages, KNOT Offshore Partners’ current yield is 117% above the 4.6% average yield of the entire Shipping segment and 34% higher than the already high 7.46% average yield of only dividend-paying companies in the segment.

Unfortunately, the company’s share price has been on something of a roller coaster over the last year or so. The share price reached its 52-week high of $24.42 only a few days into the trailing 12-month period before dropping almost 15% by the end of May 2017. Over the next five months, KNOP regained nearly 80% of its loss. However, the share price started dropping again and declined more than 14% before reaching its 52-week low of $19.15 by February 5, 2018. Since the 52-week low, the share price has gained nearly 8% to close on April 23, 2018 at $20.85, which was still nearly 13% short of the 52-week high from April 2017.

In the end, even a 10% dividend yield could not overcome two significant share price drops of more than 13%, and KNOP returned a one-year total loss of 1.2% to its shareholders. Thankfully, an expanding economy should give KNOP a solid basis on which to retest its one-year high, while still paying out consistent dividends.

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