I bought Potash Corporation on Thursday.

music selection: “Sweating Bullets” — Megadeath

The portfolio needed a little housekeeping last week.  I was over allocated to NIO and also held the shares in the wrong brokerage.  So, I changed it out for POT.

Potash Corporation has struggled since the 2008 recession.  Shares have fallen quite a bit.  Yield is now 5.9%.  But POT is a trophy holding if you can get it at the right price.  The company is the hands down low cost producer of potash fertilizers thanks to it six strategic mining assets in Canada.  The company continues to have good margins despite the week pricing cycle.  POT also has a nitrogen, and phosphorus fertilizer line of products but these are lower margin items for the company.

The balance sheet can be trusted on this company.  Two reasons for this, debt levels are reasonable, and their trophy asset mines are super premium collateral that can be used to secure and roll forward new debt.  In the most recent year, gross margin was over 37% even though it is a weak pricing environment.  More importantly, the company is cash flow efficient.  The most recent year saw almost 21 cents of free cash for every dollar of revenue.  Even during a down cycle, this company is a cash machine.

The company is using the downside and depressed share price to reward shareholders.  With poor prospects for capital investment, the company is returning every last bit of free cash flow to shareholders as dividends and share buybacks.  Management is clearly focused on shareholder return.  Since 2011 the distribution has grown from seven cents a share to thirty eight cents a share, more than five times.  And the future looks bright.  China and India are going to bring about a billion people into the middle class during the next two decades.  They will eat more meat and indirectly consume more grains, boosting demand for fertilizer products.  China has also recently ended its controversial “one child” policy; a Chinese baby boom is around the corner.

Because the upside price appreciation is so high, I will not be writing covered calls against this position until the share price approaches 50 dollars a share (entry point was 21.15).  I expect plenty of bonus yield from dividend increases while I wait.  This one is a screaming buy lizards.

Devour your prey raptors!

Buy to hold Potash Corporation of Saskatchewan Inc. (POT)

Never miss another opportunity to devour prey!

4 thoughts on “Buy to hold Potash Corporation of Saskatchewan Inc. (POT)

  • November 11, 2015 at 6:38 pm
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    Because this is a Canadian company, will taxes be withheld from the dividend payments (no matter if it is held in an IRA, or if the amount is small, a few hundred dollars)?

    Reply
    • November 11, 2015 at 7:08 pm
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      The US and Canada have a tax treaty so if it is in an IRA you should not see withholding. Because of the same tax treaty, any withholding in a taxable account can be recovered at tax time by filing form 1116. You will be made whole.

      Reply
  • November 12, 2015 at 12:53 am
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    The yield on this stock is certainly huge and quite a few dividend growth investors have been adding this name to their portfolios. Basically, this is a commodity play that is suffering from lower prices but much like oil and energy companies an eventual rebound will launch prices back up for this stock. I have considered this name a while back but not again in recent times. Thanks for bringing this back to my attention.

    Reply

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