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Checking in with CF Industries’ Dividend Yield

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Dividends

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.

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Dividend yield

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

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.

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