Income investors are seeking dividend stocks with stable dividends and a recession resilient business model. CVR Partners, LP (UAN) is a 2011 newcomer to the dividend space, but has rewarded shareholders with positive returns and a steady dividend. This article's intent is focused on why dividend investors should purchase today, after your due diligence, shares in CVR Partners.
I should point out that I invest my own money in these stocks. I have family money I invest in these stocks. My focus is to attempt to keep the investing thesis simple and understandable so my mother can understand why I own CVR Partners. The bottom line, for my modus operandi, is to create positive cash flow and invest in understandable business models. CVR Partners provides such an example.
Here are the 3 definitive reasons to buy CVR Partners:
- The demand for CVR Partners' products is mandatory to increase the food production and crop output to feed a growing global population.
- CVR Partners is established as a master limited partnership (MLP). CVR Partners' pays a significant dividend yield when compared to comparative investment yields. The current yield is an annual $1.92 distribution. This equates to a 7.6% yield on a closing CVR Partner's price of $25.15.
- Management is focused upon growing CVR Partner's annual fertilizer production and increase the annual dividend.
CVR Partners' Background
The company's business model is to produce nitrogen fertilizers including ammonia and urea ammonium nitrate. The facility produces a 1,225 ton-per-day ammonia unit, and a 2,025 ton-per-day urea ammonium nitrate unit.
The business includes ownership of Coffeyville Resources Nitrogen Fertilizers, LLC, a petroleum coke (also known as "pet coke") gasification-based nitrogen fertilizer manufacturing facility. This plant is the only commercial operation in N. America that uses low cost, compared to natural gas, to manufacture nitrogen fertilizers. The company is based in Sugar Land, Texas. CVR Partners, LP operates as a subsidiary of CVR Energy, Inc. (CVI).
CVR Energy is an independent petroleum refiner. The company sells transportation fuels in the U.S. A subsidiary of CVR Energy is the general partner of CVR Partners. The subsidiary owns the majority of the common units representing limited partner interests of CVR Partners.
Distributions and Fertilizer Results
Byron R. Kelley, Chief Executive Officer, on the November 1st conference call discussed the excellent third quarter results.
The demand continues to be strong. As discussed on the conference call, the fertilizer production output is sold for future delivery. Thus SEC accrual accounting requires the recognition of sales upon physical delivery of fertilizer production per agreed upon sale conditions.
Mergers and Acquisitions
Edward A. Morgan, Chief Financial Officer, confirmed CVR Partners is exploring and identifying potential acquisition targets. Accordingly, an admittance was discussed that the merger and acquisition market is very slow right now.
A key focus is the need to remain diligent upon not over leveraging its balance sheet. The company is exploring acquisitions on a conservative basis.
Management confirmed the new CVR Partners' expansion plans will be complete (SEC 3rd Quarter, page 42) in the 1st quarter of 2013. This will increase urea ammonium nitrate from 675,000 tons to 1,075,000 tons.
Management did discuss an initial public offering, during the course of questions and answers, of Rentech, Inc. (RTK) and its subsidiary spin off. Rentech will not introduce new fertilizer product onto the market, but only introduce a new publicly traded business entity.
CF Industries Holdings, Inc. (CF) owns over 70% of Terra Nitrogen Company, L.P. (TNH). CF Industries is is one the largest global manufacturers and distributors of nitrogen and phosphate fertilizer products. CF operations are organized into two business segments: nitrogen segment and phosphate. Terra Nitrogen Company globally manufactures and distributes nitrogen fertilizer products to agricultural and industrial customers.
CVR Partners continues to provide shareholders high yields and positive investment results. The business plan has proceeded to its IPO road show. The fertilizer industry should continue to do well as farmers seek to expand their crop output. The 10Q and conference call confirmed the positive direction CVR Partners is going.