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An investor's guide to PotashCorp's 1Q14 and forward outlook

Part 10
An investor's guide to PotashCorp's 1Q14 and forward outlook (Part 10 of 11)

Is PotashCorp’s dividend for your retirement account a good idea?

Attracting dividend investors

There are many reasons why an investor might want to purchase fertilizer stocks such as Mosaic Company (MOS), CF Industries Holdings, Inc. (CF), PotashCorp (POT), and Agrium Inc. (AGU). These include growing population, climate change, hedge against food inflation, and emerging markets growth. But it may also attract a new group of people now: dividend investors.

Dividend and Free Cash FlowEnlarge Graph

From investment to return of capital

Prior to 2012 and 2013, PotashCorp (POT) didn’t give out significant dividends. When the company had cash, the company used it for share buybacks and to invest in new mining assets. These were signs that the management and the board believed investing in the company, either in the form of stock purchases or capacity expansions, would maximize shareholder value.

But since 2011, PotashCorp has been increasing its dividends, rather than plowing more money back into investments. From 2010 to 2013, dividends have grown 738%. For this year, it’s estimated that the company will pay out $1.40 a share in dividends, equivalent to a 3.86% yield.

Higher free cash flow expected

While it might not seem a lot, analysts are currently forecasting the company’s free cash flow will increase almost 42% by the end of 2016, as the industry recovers, and capital expenditures on expansion program come to an end. If management believes returning cash will be a good source of cash inflow, it may decide to increase dividends, which would support the company’s share prices.

During the J.P. Morgan Aviation, Transportation & Industrials Conference, David Delaneyexecutive vice president and chief operating officersaid the company will look at share buybacks, potential to increase dividends, and possibly M&A. With a beta of close to 1.0 and dividend yield that is higher than the S&P 500′s 1.86%, what’s there to not like as part of a long-term retirement account?

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