CVR Partners Stock: Outlook for 40.6%-Yielder Bullish in 2024
January 9, 2024
Why UAN Stock Could Break Out
My family didn’t have air conditioning in our car when we were kids. Driving past farmland on humid summer days meant we were forced to breathe in the pungent smell of fertilizer.
Fertilizer might smell bad, but for astute investors, it’s the sweet smell of success.
America’s only petroleum coke-based nitrogen fertilizer producer, CVR Partners LP (NYSE:UAN), 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 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 January 3, 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. The Coffeyville plant, which sits on 35 acres, includes a 1,300-ton-per-day ammonia facility, a 3,000-ton-per-day urea ammonium nitrate facility, and a gasifier complex with a hydrogen capacity of 89 million standard cubic feet per day.
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.
CVR Partners LP Swung to Profitability in Third Quarter of 2023
In October 2023, CVR Partners announced third-quarter sales of $131.0 million, down from $156.0 million in the third quarter of 2022. (Source: “CVR Partners Reports Third Quarter 2023 Results and Announces a Cash Distribution of $1.55,” CVR Partners LP, October 30, 2023.)
The company’s third-quarter net income came in at $1.0 million, or $0.07 per unit, up from a third-quarter 2022 net loss of $20.0 million, or $1.87 per unit. Its third-quarter earnings before interest, taxes, depreciation, and amortization (EBITDA) more than tripled to $32.0 million, from $10.0 million in the third quarter of 2022.
In the third quarter of 2023, CVR Partners’ average realized gate prices for urea ammonium nitrate went down by 48% year-over-year to $223.00 per ton. Ammonia prices went down by 56% year-over-year to $365.00 per ton.
“Nitrogen fertilizer prices reset this summer and we have seen rising prices into the fourth quarter,” said Mark Pytosh, CVR Partners LP’s CEO. “With attractive farmer economics, we expect nitrogen fertilizer demand to be strong through the end of 2023 and into the spring of 2024.” (Source: Ibid.)
Management Announced Q3 Dividend of $1.55 Per Share
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 its finished products, and maintenance expenses.
As you can see in the red line in the chart below, CVR Partners stock’s distribution indeed varies.
In 2023, UAN stock paid $10.50 per unit in the first quarter, $10.43 per unit in the second quarter, $4.14 per unit in the third quarter, and $1.55 per unit in the fourth quarter, for a yield of 40.64% (as of this writing). (Source: “Dividend Information,” CVR Partners LP, last accessed January 3, 2024.)
Its full-year 2023 payout of $26.62 per unit was well above its 2022 payout of $19.32 per unit.
CVR Partners stock’s distribution hasn’t always gone up. It paid just $0.20 per unit in 2017, and it didn’t pay any distribution in 2020.
That means CVR Partners unitholders need to really keep an eye on what’s going on with fertilizer prices. That’s not as difficult as it sounds. Investors can get a handle on that by reading CVR Partners LP’s quarterly results. Stockholders should be reading the earnings reports of every company they invest in, anyway.
UAN Units Up 27.8% Year-Over-Year
CVR Partners LP’s high dividend yield is mostly a result of its lower share price. The higher the share price, the lower the yield (and vice versa).
Recently, UAN stock’s lower share price has been helping juice its dividend yield.
As of this writing, CVR Partners LP stock is down by 11.7% year-over-year. On the plus side, the partnership’s share price started off the new year in the black. It went up by 2.5% on the opening day of trading.
Chart courtesy of StockCharts.com
The Lowdown on CVR Partners LP
Fertilizer might not make for great dinner table talk, but it can provide investors with solid long-term capital appreciation and inflation-crushing dividends.
That’s the case with CVR Partners LP. The company has been reporting significant revenue and earnings growth, which has been fueling its high-yield quarterly distributions.
Although no Wall Street analysts have provided guidance on CVR Partners units, the partnership said in its third-quarter earnings report that the demand for ammonia fertilizer was high in autumn, and that it expected the company’s momentum to continue through the end of 2023 and into the spring of 2024.
That bodes well for CVR Partners LP’s results for the fourth quarter of 2023 and the first half of 2024 (at least). The partnership’s outstanding financial results should help energize UAN stock’s dividends.
