Income investors in PotashCorp (POT) took a hit last year after the company announced it was slashing its dividend per share. Usually, companies don’t cut dividends since it typically spells trouble. However, with declining fertilizer prices, which weakened fertilizer companies’ (MOO) cash flows, some companies resorted to cutting dividends.
PotashCorp’s dividend estimates
For 2017, Wall Street analysts are estimating POT’s dividends to fall to $0.40 per share, which is 47.0% less than 2016. Naturally, a further weakening in fertilizer prices may lead to more dividend cuts.
With falling potash prices, investors are speculating that PotashCorp may slash its dividends, which have had the highest yield (more than 9.0%) in the industry. Mosaic (MOS), Agrium (AGU), and CF Industries (CF) had mid-to-low-single-digit dividend yields. These companies are part of the VanEck Vectors Agribusiness ETF (MOO), which invests about 30.0% of its portfolio in the agricultural chemical business.
Dividends in the past
About a year ago, in its 4Q15 earnings release, PotashCorp slashed its dividends 34.0%. It came primarily on the heels of weakening market fundamentals for the fertilizer industry. The company’s dividend payout ratio was 158.0%, which wasn’t sustainable.
Next, let’s look at the valuation multiples for PotashCorp and compare them to its peers.