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Why Dynagas LNG Partners Stock Dropped 29%

Rich Smith, The Motley Fool

What happened

Shares of liquefied natural gas tanker company Dynagas LNG Partners (NYSE: DLNG) hit a reef on Monday, falling 29.1% as of 12:40 p.m. EST.

Dynagas announced on Friday after close of trading that it is cutting its "quarterly cash distribution" (commonly thought of as a dividend) by 75% to just $0.0625 per unit.

A tanker that has run aground on a reef.

Investors just grounded Dynagas stock. Image source: Getty Images.

So what

After four straight quarters of profitability, Dynagas reported a $0.07-per-share loss last quarter, and with Q4 2018 earnings not that far off, it appears things haven't taken a turn for the better at Dynagas. Company CEO Tony Lauritzen said the distribution cut was necessitated by the need "to retain more ... cash ... to maintain a steady cash balance and to facilitate the refinancing of the Partnership's $250 million notes which mature on October 30, 2019."

Now what

On its face, this seems like a prudent move -- Dynagas deciding to pay its debts and diverting cash that would otherwise go to shareholders for this purpose. But here's where things get a bit dicier.

Dynagas warned that "the level of future cash distributions to common unit holders ... may be further reduced or eliminated by the Board of Directors of the Partnership" based on such factors as "the final terms of the refinancing of the Notes, including the level of indebtedness incurred (if any) or new securities issued (if any) by the Partnership in connection with such refinancing."

So the upshot is this: Dynagas is cutting its dividend -- and may do so again.

No wonder investors are upset.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.