CVR Partners LP: 12.2% Yielder Up 21% in 2024
June 28, 2024
CVR Partners Stock Outlook Bullish on Solid Q1 Results
When you’re out driving your car this summer and pass a field of corn undulating under the warm sun or some other crop growing in the fields, remember to give thanks to the fertilizer that helps it grow. And if you’re an income investor, give a nod to CVR Partners LP (NYSE:UAN).
America’s only petroleum-coke-based nitrogen fertilizer producer, CVR Partners is a limited partnership formed by CVR Energy, Inc. (NYSE:CVI) to own, operate, and grow its nitrogen fertilizer business.
Nitrogen fertilizer is critical for plant growth and reproduction. Soil often already includes nitrogen and other nutrients, but it’s not always enough to support healthy plant growth. Fertilizer can significantly improve crop yields.
Moreover, fertilizers typically represent about 15% of farmers’ cost structure. Nitrogen fertilizer is generally low on the cost curve for farmers.
On the topic of farming, the demand for corn is high in the U.S. because, in addition to corn on the cob, the crop has a large number of uses, including feed grain and fuel (ethanol).
CVR Partners is based in Sugar Land, Texas, but its nitrogen fertilizer manufacturing facilities—which primarily produce ammonia and urea ammonium (UAN) nitrate fertilizers—are located in the Corn Belt. The company has facilities in Coffeyville, Kansas, and East Dubuque, Illinois. (Source: “Investor Presentation: September 2022,” CVR Partners LP, last accessed June 25, 2024.)
Coffeyville Resources Nitrogen Fertilizers, LLC, a subsidiary of CVR Partners, directly owns and operates the Coffeyville nitrogen fertilizer plant.
The plant is the only such operation in North America that uses a petroleum coke gasification process to make hydrogen, which is a key ingredient in the fertilizer manufacturing process.
East Dubuque Nitrogen Fertilizers, LLC, another subsidiary of CVR Partners LP, directly owns the East Dubuque nitrogen fertilizer plant, which uses natural gas as its feedstock to produce fertilizer. This plant includes a 1,075-ton-per-day ammonia facility and a 1,100-ton-per-day urea ammonium nitrate facility.
You might not ponder the merits of fertilizer very often, but it’s important to know that the long-term outlook for the U.S. nitrogen fertilizer industry remains robust. And that’s great news for CVR Partners.
According to the latest data, the global nitrogenous fertilizer market was valued at $66.7 billion in 2023. It’s projected to expand at a compound annual growth rate (CAGR) of 5.6% from 2024 to 2030. By 2033, which is less than a decade away, the nitrogenous fertilizer market is expected to top $115.0 billion. (Source: “Nitrogenous Fertilizer Market Size by Product Type (Ammonium Sulfate, Ammonium Nitrate, Urea, Calcium Ammonium Nitrate and Others), Crop Type (Fruits and Vegetables, Oilseeds and Pulses, Cereals and Grains and Others), Regions, Global Industry Analysis, Share, Growth, Trends, and Forecast 2024 to 2033,” The Brainy Insights, February 2024.)
Another Solid Quarter
For the first quarter ended March 31, 2024, CVR Partners reported net sales of $128.0 million with net income of $13.0 million, or $1.19 per unit. In the first quarter of 2023, the company reported net income of $102. million, or $9.64 per unit, on sales of $226.0 million. (Source: “CVR Partners Reports First Quarter 2024 Results and Announces a Cash Distribution of $1.92,” CVR Partners LP, April 29, 2024.)
CVR Partners’ sales and earnings were down as a result of decreased production, going down to 193,000 tons during the first quarter compared to 224,000 tons in the same period last year. The decrease was due to planned downtime of 14 days at the Coffeyville facility.
Moreover, results were impacted by a reduction in CVR Partners’ average realized gate prices for UAN, which were down 42% on an annual basis to $267.00 per ton, and ammonia, which was down 41% at $528.00 per ton.
In the first quarter of 2023, the company’s average realized gate prices for UAN and ammonia were $457.00 and $888.00 per ton, respectively.
Commenting on the results, Mark Pytosh, the company’s chief executive officer, said, “CVR Partners posted solid operating results for the first quarter of 2024 driven by safe, reliable operations and a combined ammonia production rate of 90 percent, despite a 14-day planned outage at the Coffeyville fertilizer facility.”
Pytosh added, “Nitrogen fertilizer demand for the spring pre-planting season also has been steady and remains consistent with USDA estimates for planted grain acreage. In addition, nitrogen fertilizer pricing has improved since the fourth quarter, driven by continued attractive farmer economics.”
Quarterly Distribution of $1.92 Per Unit
When it comes to dividends, CVR Partners LP’s policy is to distribute all of the available cash it generates each quarter. That means its payout varies due to factors such as operating performance, fluctuations in the prices of finished products, and maintenance capital expenditures.
As you can see by the red line in the chart below, UAN stock’s distribution can really vary.
In May 2023, CVR Partners paid a quarterly distribution of $10.43 per unit; in November of that same year, it made a distribution of $1.55 per unit. (Source: “Dividend History,” CVR Partners LP, last accessed June 26, 2024.)
It’s been going up since then. In the first quarter of 2024, CVR Partners paid $1.68 per common unit. In April, it paid out a distribution of $1.92 per unit, or $9.29 per share on an annual basis, for a forward dividend yield of 12.22%.
Because CVR Partners’ distribution is variable, there can be times when it doesn’t pay one at all. In fact, it didn’t pay any distribution in 2020, and its payout in 2017 was just $0.20 per unit.
Right now though, CVR Partners is generating a lot of cash, which funds its distribution.
In 2020, the company reported free cash flow (FCF) of just $1.14 million. In 2021, FCF jumped to $168.0 million. It then climbed to $256.0 million in 2022, before retracing to around $219.0 million in 2023.
Strong industry tailwinds point to continued strong FCF generation and a reliable, variable distribution.
UAN Units Up 21% in 2024
Typically, a big, inflation-crushing dividend yield comes on the heels of a lower share price. And that was certainly the case at the start of the year, when UAN units were down 11.7% on an annual basis and boasted a dividend yield of 40.6%.
The tide has turned though. CVR units have been performing well of late, up 4.5% year over year and up 21.5% in 2024.
There’s certainly room for CVR units to grow. UAN needs to climb 50% to reach its April 2022 record high of $114.85 per unit.
Chart courtesy of StockCharts.com
The Lowdown on CVR Partners LP
Not only does CVR Partners LP help feed Americans, but it also provides unitholders with solid, long-term capital appreciation and an inflation-thumping dividend. It’s reporting solid revenue and earnings and generating FCF, which helps fuel its strong quarterly distribution.
While no Wall Street analysts provide guidance on UAN units, the outlook for CVR Partners LP remains robust, with solid near- and long-term demand for UAN and ammonia. This bodes well for CVR Partners LP in 2024 and beyond.
