Checking in with CF Industries’ Dividend Yield

As of February 19, 2016, CF Industries (CF) pays a quarterly dividend of $0.3 per share. In 2015, it paid an annual dividend per share of $3.6, which was down from the $5 per share it paid in 2014. However, when considering dividends, it is more important to look at the company’s dividend yield if you are an income investor.

As the chart above shows, CF’s (CF) forward dividend yield has risen over the past few years. As of this writing, it stands at 3.6%. But in a shaky commodity pricing environment, investors often ask the sustainability of the dividend yield.

Fertilizer prices play a key role in a company’s dividend policy, and weak pricing outlook affects dividend policy. Recently, Potash Corporation (POT), which had one of the highest dividend yields of ~10% (compared to 4.9% of the Mosaic Company [MOS] and 4% of Agrium [AGU]), slashed its dividends due to an anticipation of a weakness in prices. (You can read more about this in Market Realist’s “Why PotashCorp Slashed Its Dividends by 34%.”)

Some of these companies can also be accessed through the Materials Select Sector SPDR ETF (XLB), which invests 12% of its portfolio in agricultural chemicals.

Forward dividend yield is calculated by taking the next 12-month projected dividends over the current stock price. The projection can be made by annualizing the company’s most recent dividend payout, which was $0.3 per share. The forward dividend yield for the next 12-months is expected to be at the 3.6% level in 2016.

But when we talk about dividends, it’s important to look at cash flows. We’ll do that in the next part.