UAN contniues to perform amazingly...now if only Mr. Market would notice
Since it is currently my largest personal equity holding at just under 7% of my portfolio, I figured that I'd provide an update to my friends here at CAPS on CVR Partner's (UAN) recently reported quarterly results.
I have to keep this short though because my son has another indoor soccer game tonight that I'm coaching. Like one learns from past experiences in investing, I have adjusted my coaching technique for the team as well after the last game. Needless to say, 10 kids surrounding you clamoring for their favorite position when only six are on the field at one time is fairly chaotic. As a result, I put together a spreadsheet that assures all of the kids fairly equal playing time and pairs the ones that I believe will play the best together with each other. Plus, to avoid the end of game collapse that we experienced last game, I have made sure that we have a strong team on the follr at the end. I want all of the kids to have fun and learn, this will assure that they do and hopefully enable us to win as well. It will be interesting to see if a lack of continuity in positions has an impact upon their play.
Back to UAN. The page for the company on Yahoo Finance! lists a dividend yield of 3.1%. I find this particularly funny because the company's distribution for all of 2012 was in 6.8%, even using today's higher stock price. Not only that, but the company's distribution guidance for 2013 is $2.15 per common unit to $2.45 per common unit, which using today's closing share price of $26.55 translates to a yield of 8.1% to 9.2%. Where can you get yields like that in today's low-rate environment?
Why the discrepancy. For one, every other year the company shuts down a huge chunk of its facility for maintenance. This significantly impacted the Q4 distribution, making it look lower when annualized. Furthermore, the company's new plant expansion is ramping up and is expected to be fully operational (doesn't that phrase make you think of Star Wars..."I'm afraid the Death Star will be fully operational by the time your friends arrive." by the end of Q1. The added funds from the expansion juice the distribution even more. As an added bonus, the company recently reached a favorable settlement in a property tax dispute (Coffeyville Resources Nitrogen Fertilizers Agrees to Partial Settlement of Property Tax Dispute with Montgomery County).
So UAN has been firing on all cylinders lately, yet the market hasn't rewarded it accordingly, even after taking today's 4% gain in the stock into account. I love the secular tailwinds that this former spinoff has at its back and its management had done an admirable job. he only think that keeps me from making this position larger is the fact that UAN only has one production facility. Fertilizer production is a dangerous business, and while it is unlikely, it's always possible that an explosion could occur that would damage or destroy the plant. Even with insurance, that would not be a good thing for the stock price. I hope that UAN's management makes an acquisition in the future that will help diversify its operations with another production facility.
Here's a link to last quarter's results for anyone who's interested:
CVR Partners Reports Fourth Quarter and Full Year 2012 Results
Gotta run. Have a great evening everyone!