Money

How Safe Is CVR Partners’ 28% Yield?

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You read the headline right – a 28% yield.

That’s the current annual yield for CVR Partners (NYSE: UAN) based on the distributions paid in the past four quarters. Because the company is a partnership, it pays distributions instead of dividends.

The most recent distribution, paid in March, was $10.50 per share. Not bad for a stock in the low $90s.

The ammonia and urea ammonium nitrate manufacturer has a variable distribution policy.

Management has stated that the factors affecting the distribution include “operating performance, fluctuations in the prices received for finished products, capital expenditures and cash reserves deemed necessary or appropriate by the Board of Directors of [its] general partner.”

The company’s cash available for distribution, the measure of cash flow that we use to analyze this partnership, has skyrocketed in recent years, with the exception of 2020.

Chart: CVR's Cash Available for Distribution

Last year, CVR generated nearly $260 million in cash available for distribution while paying out $130 million. In the first quarter of 2023, cash available for distribution was an impressive $111 million, so the year is off to a tremendous start. With a low payout ratio, the distribution should be quite large.

But I wouldn’t get used to a 28% yield based on the company’s track record. It omitted the distribution in 2020 and 2017 entirely. And because the distribution is variable, it is routinely lowered, sometimes drastically.

For example, in March of last year, CVR paid investors $5.24 per share, slicing the payout nearly in half the next quarter to $2.26. In August, the distribution ballooned to $10.05, and then it plummeted to $1.77 in November.

In other words, you can’t rely on the distribution in any quarter. If you own the stock, enjoy the big distributions when they come in but don’t expect them to continue.

There will definitely be reductions in the near future.

Dividend Safety Rating: F

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If you have a stock whose dividend safety you’d like me to analyze, leave the ticker in the comments section.

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