Potash/Ag: Dividends Versus Buyouts (POT, BHP, AGU, MOS, CF, TNH)

Agriculture, fertilizer, and potash companies are not exactly known for the highest dividend yields in the world.  Potash Corporation of Saskatchewan Inc. (NYSE: POT) announced today that it has declared a quarterly dividend of $0.10 per share (US Dollars) payable November 8, 2010 to shareholders of record October 18, 2010.  The problem here is that there is a $130.00 per share cash offer on the table from BHP Billiton plc (NYSE: BHP), and because Potash Corp. says it is worth much more than $130 it is trading up closer to $150 per share now.

At this paltry dividend rate, Potash’s $0.40 per year dividend would take a whopping 325 years to see $130.00 in payouts to equal that offer on the table now.

Using a dividend yield is often an unfair comparison.  But what do you do when you see companies that pay out a meager $0.40 per year in annualized dividend payments for a stock that trades at $150.00 per share and has a $130 offer on the table that it has refused to accept?  Thomson Reuters has estimates of $5.44 EPS in 2010 and $7.23 EPS in 2011.  That means that Potash Corp is only paying out an expected 7.35% of its earnings to shareholders in 2010 and (assuming the rate stays flat ahead then it is only paying out 5.5% of its expected 2011 earnings.

Here is the good news.  No holder of Potash Corp. owns that stock because of the dividend yield. Here are the yields of other fertilizer and potash players:

• Agrium Inc. (NYSE: AGU) 0.20%
• The Mosaic Company (NYSE: MOS) 0.30%
• CF Industries Holdings, Inc. (NYSE: CF) 0.40%

Intrepid Potash, Inc. (NYSE: IPI) has been public since 2008 and it does not even offer a dividend.

There is one exception, but it has a very sporadic dividend history.  Terra Nitrogen Company, L.P. (NYSE: TNH) is listed as having a 10.3% yield, but again this level fluctuates wildly and it is a limited partner interest that pays out almost all of its earnings.

Dividends matter to income investors.  Generally speaking, that investment goal is not going to include those in fertilizers and potash.  Getting excited about a premium merger with the hope that a higher premium may be on the way is one thing.  Trying to get excited about these dividend rates generally leaves a lot of room to be desired.

JON C. OGG