3 High-Yield Fertilizer MLPs For Income Investors

Includes: RNF, TNH, UAN
by: Quinn Bredl

Everybody loves cash, right? I sure do, and I don't know anybody who doesn't. Capital appreciation is great, but it can be pretty frustrating when the market decides to wipe out a quarter's worth of gains in one trading session. It might not happen often, but it can happen, and it has happened, and it will probably happen again. So for the more conservative investors out there, such as those planning to retire, a steady stream of income is something that will definitely help you sleep at night.

While traditional dividends from Blue Chips provide a steady and often predictable source of income, which many investors appreciate, there are still those looking for higher payouts. Investing in a Master Limited Partnership is an excellent opportunity to receive such payouts, though the distributions (MLP-speak for dividends) can be volatile, unpredictable and dependent on the company's cash flow.

Some of the most lucrative investments in MLPs can be found in the agricultural chemical industry. Why? To put it simply, we all need food. And while many of you may not find nitrogen fertilizers to be the most appetizing means to grow the food that you put in your mouth, you can still profit from it.

Investing in MLPs isn't for everyone; but for those looking for some potentially hefty payouts and who don't mind a little volatility in distributions from quarter to quarter, fertilizer MLPs should be on your watchlist.

CVR Partners, LP (NYSE:UAN)

Market Cap: $1.85 Billion

Current Unit Price: $25.33

52-Week Range: $19.21-$30.00

Price/Free Cash Flow: 20.39

Price/Book: 4.02

Profit Margin: 42.85%

Total Cash: $180.29 million

Total Debt: $128.01 million

Distribution (%) TTM: $1.81 (6.78%)

(Find more stats here.)

CVR Partners was spun off from its parent, Carl Icahn's CVR Energy, Inc. (NYSE:CVI), in the spring of 2011, so keep in mind that it has had a short publicly traded life. CVR Partners, like the other MLPs, produces nitrogen fertilizers but is unique in that it uses petroleum coke (or pet coke) as their feedstock rather than natural gas, as other fertilizer companies do. The company claims to be the only one to use such a method in North America. The good thing about pet coke is that it's a byproduct of refining petroleum, and is supposed to be consistently cheaper than natural gas, though recently natural gas has been favorable to fertilizer companies as prices sit so low. But guess who refines petroleum just a stone's throw away? CVR Refining (NYSE:CVRR), another of CVR Energy's subsidiaries. Also, to make things a little more enticing, the company just recently utilized significant resources for a plant turnaround in October, which explains the relatively paltry 19.2 cent Q4 distribution. And due to the expansion of the Urea Ammonium Nitrate plant, the company announced that they expect a double-digit increase in cash available for distribution in 2013.

Rentech Nitrogen Partners, L.P. (NYSE:RNF)

Market Cap: $1.54 billion

Current Unit Price: $39.79

52-Week Range: $21.08-$44.90

Price/Free Cash Flow: 200.52

Price/Book: 15.20

Profit Margin: 41.56%

Total Cash: $55.49 million

Total Debt: $27.89 million

Distribution (%) TTM: $3.83 (9.63%)

(Find more stats here.)

Rentech Nitrogen Partners spun from its parent, Rentech Inc. (NYSEMKT:RTK), in late 2011. It, like CVR Partners, hasn't had a long history trading on the public market. But it has sure made a lasting impression throughout its short history: the units are up 98.95% from an IPO price of $20. I don't know about you, but I'd take that return any day of the week. Some of you may find that such a run throws up some red flags, and I don't blame you. At this point it seems logical to ring the cash register and run with your money, but the MLP still has things going for it, like its strategic location. The company touts its proximity to the "strong and growing" markets of Illinois, Iowa and Wisconsin. Also, another thing going for Rentech Nitrogen is its heftier-than-average payout. Over the past four quarters the MLP has rewarded investors handsomely, though distributions for 2013 will be negatively impacted by a turnaround this coming fall, just as CVR Partners experienced.

Terra Nitrogen Company, L.P. (NYSE:TNH)

Market Cap: $4.30 billion

Current Unit Price: $230.06

52-Week Range: $173.11-$298.50

Price/Free Cash Flow: 8.11

Price/Book: 19.31

Profit Margin:39.66%

Total Cash: $160.10 million

Total Debt: $0

Distribution (%) TTM: $15.96 (6.94%)

(Find more stats here.)

With arguably the strongest parent of all fertilizer MLPs is the Terra Nitrogen Company, a subsidiary of fertilizer giant CF Industries Holdings Inc. (NYSE:CF). The company is the most senior of this group in regard to its time on the public market, with 20 years of experience. Terra Nitrogen is also a distribution stalwart, and has paid out a whopping $105.74 per unit in distributions since 1992, which is pretty amazing considering that units traded at around $10 at the time. If you're looking for a more proven MLP, you'll have a tough time finding one.

Like I said earlier, MLPs aren't for everyone, but with such generous payouts and high yields, they're hard to resist. If you're the type of investor who can put up with volatile distributions then I'm sure one of these MLPs is the perfect match for you - the hard part is choosing one. Personally I find CVR Partners to be the most attractive of the three - the increase in available cash for distribution for this coming year is overlooked by many, and the relatively flat price action keeps it below reasonable valuation. Throw into the mix Carl Icahn and I think we'll have some excitement coming our way in the future.

Disclosure: I am long UAN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.