We’ve been exploring the potential of $KNOP (KNOT Offshore Partners LP) as a high-yield investment, considering whether to buy 700 shares at $6.41. Before we get back to the numbers, let’s revisit a practical strategy to potentially fund this venture: the power of mindful spending on everyday expenses like lunch.
Remember that by choosing to bring your own lunch for an estimated $3.50 per day instead of spending $12, five days a week, you could free up a significant $2210 per year. This saving isn’t just abstract; it’s tangible capital that could be strategically deployed towards income-generating assets like $KNOP.
Now, let’s look at the actual income $KNOP has generated for shareholders over the past year.
$KNOP Buy-or-Avoid Checklist
Key Stats:
– Price: $6.41 | Div. Yield: ~13% | Debt: $1.1B | Fleet Age: 12 yrs
– Q1 2024 Payout: $0.52/share (73% covered by earnings)
1. The Bull Case (Reasons to Buy) – Backed by Recent History
- ✅ Lucrative Past Dividends: Over the past year (Q3 2023 – Q2 2024), owning 700 shares of $KNOP would have yielded a total of $1,464.40 in dividends. This translates to an impressive ~13% annual yield based on the current price.
- ✅ Dividend Consistency (with a Caveat): $KNOP maintained a payout of $0.526 per share for seven consecutive quarters before a slight trim to $0.52 in Q1 2024, demonstrating a commitment to returning capital to shareholders.
- ✅ Tanker Market Tailwinds:
- Red Sea disruptions → longer routes → higher tanker demand.
- Hurricane season (Aug-Oct) could spike oil shipments.
- ✅ Undervalued? Trades at 5.2x P/E vs. peers (see table below).
Peer Comparison
| Metric | $KNOP | $FRO | $TNK |
|---|---|---|---|
| Div. Yield | 13% | 15% | 12% |
| Debt/Equity | 1.6x | 1.2x | 1.8x |
| Fleet Age | 12 yrs | 8 yrs | 10 yrs |
Takeaway: $KNOP has delivered significant income recently, highlighting the allure of its high yield, especially when juxtaposed with potential savings from lifestyle adjustments. However, the recent small dividend cut serves as a crucial warning.
$KNOP Dividend Payouts (Past 4 Quarters)
| Quarter | Dividend per Share | Payout for 700 Shares |
|---|---|---|
| Q3 2023 | $0.526 | $368.20 |
| Q4 2023 | $0.526 | $368.20 |
| Q1 2024 | $0.52 | $364.00 |
| Q2 2024 | $0.52 | $364.00 |
Total Dividends (Past Year): $1,464.40 for 700 shares (~13% annual yield at $6.41/share).
2. The Bear Case (Reasons to Wait) – Underlying Concerns
- ⚠️ Dividend Cut Risk:
- Q1 2024 EPS was $0.38, but the dividend was $0.52 → 73% coverage (unsustainable long-term). The recent small cut hints at this pressure.
- Debt refinancing in 2025 could force a deeper cut.
- ⚠️ Debt Time Bomb: $350M debt due in 2025—refinancing could dilute shareholders.
- ⚠️ Old Fleet: 12-year-old vessels cost more to maintain (eating into cash flow), potentially further straining dividend coverage.
3. Critical Catalysts to Watch
- Q2 Earnings (Aug 2024):
- Look for charter rate renewals and debt refinancing updates. Crucially, monitor if the $0.52 dividend per share is maintained.
- Any hint of further dividend cuts = immediate sell-off risk.
- Oil Prices & Geopolitics:
- OPEC+ production cuts → higher tanker demand.
- Escalation in Red Sea conflicts = bullish for rates, potentially improving cash flow and dividend safety.
4. Strategic Entry Suggestions
- Option 1: Buy Now + Hedge
- Buy 700 shares @ $6.41 + set a stop-loss at $5.90 (~8% downside protection).
- Sell covered calls (e.g., Aug $7.50 calls for $0.30) to reduce cost basis and provide a small buffer against potential price drops.
- Option 2: Wait for Confirmation
- Hold cash until after Q2 earnings (Aug 2024) for clearer dividend guidance.
- Target entry below $6.00 if market panics due to earnings or dividend concerns.
5. Your Potential Outcomes – Income vs. Risk
| Scenario | Result for 700 Shares @ $6.41 |
|---|---|
| Dividend Holds ($0.52/quarter) | +$1,456/year income (historically accurate, but future uncertain) |
| Div. Cut 25% ($0.39/quarter) | +$1,092/year income; Stock could drop ~20% (to ~$5.10) |
| Oil Surge & Improved Coverage | Potential for both higher dividends and share price appreciation |
Final Verdict
High-Risk, High-Reward Income Play with Historical Context. The past year’s payouts highlight the income potential, but the shaky coverage and upcoming debt refinancing amplify the risk of a dividend cut. This play is only suitable if:
– You’re comfortable with significant energy sector volatility and dividend uncertainty.
– You’ll actively monitor earnings, debt news, and dividend announcements.
– You diversify your portfolio and don’t allocate a disproportionate amount to this single investment.
The Tangible Connection: The $2210 annual savings from a simple lunch adjustment could have more than funded the $1464.40 in dividends received over the past year from 700 shares of $KNOP. This illustrates how mindful spending can directly contribute to building an income-generating investment portfolio.
Alternatives: Given the concerns, consider a smaller initial position in $KNOP and allocate more capital to safer, albeit potentially lower-yielding, tanker companies like $FRO (15% yield, better coverage) or $STNG.
Decision Time:
– ”Buy (Cautiously)” if you are drawn to the high historical yield and are prepared to actively manage the risk of a dividend cut, perhaps using the savings from lifestyle adjustments to offset potential losses.
– ”Wait (Wisely)” if you prioritize dividend safety and want to see confirmation of continued payouts after the Q2 earnings report and updates on debt refinancing.
Let me know if you’d like to explore hedging strategies or further compare $KNOP to its peers!