Mosaic may be the leader in terms of volume, but PotashCorp’s phosphate diversification is second to none. The company offers products to four segments: liquid fertilizer, solid fertilizer, feed, and industrial. Mosaic serves only the solid fertilizer and feed markets, albeit in much larger quantities. The key takeaway here is that feed and industrial phosphate prices don’t encounter the wild seasonal fluctuations of phosphate fertilizer. For example, phosphate fertilizer prices soared to $900 per metric ton in 2008 before dropping 67% to $300 in 2009. Industrial phosphate fell from $700 to $600 on the same basis.
Nitrogen
Demand for nitrogen fertilizers has risen sharply in recent years, but domestic production has been slow to catch up. In 2011, an estimated 54% (10.8 million metric tons) of nitrogen used in the country’s heartland was imported. More than 20% of imports can be chalked up to PotashCorp’s Trinidad ammonia facilities. In total, the company produced 3.5 million metric tons of ammonia in 2012, which will grow 500,000 metric tons this year.
Unfortunately for PotashCorp, location is everything in the nitrogen business. A Midwest producer’s costs can be as low as $150 per metric ton, while the Trinidad facilities hover closer to $400. Geographic advantages have greatly enhanced the margins of CF Industries’ majority-owned subsidiary Terra Nitrogen, which produced nearly 13 million metric tons of nitrogen in 2011. The two companies will continue to lead worldwide nitrogen production for the foreseeable future.
Realizing the high barriers in transporting nitrogen to farmers in the Midwest, PotashCorp sells 85% of its ammonia to industrial customers – mostly in the Gulf. The rest makes its way through pipelines to customers further inland.
Foolish bottom line
The entire industry has undertaken massive expansion projects in the last decade to respond to the increasing demand for fertilizer products. Perhaps no other company embodies the industry’s strategic investment strategy better than PotashCorp, whose $2 billion in investments since 1998 have a cumulative market value of $9.2 billion today.
Source: PotashCorp Corp
Investors should see tremendous growth over the next few years as the company’s latest round of investments winds down. A smaller tab for capital expenditures will free up over $1.5 billion in cash flow – before accounting for production increases – by 2015. In my opinion, market demand and lower expenses ensure an improving cash flow and a safe dividend for the foreseeable future. Do you agree with me? Let me know in the comments section below.
The article Whose Dividend Has Grown 700% Since 2011? originally appeared on Fool.com and is written by Maxx Chatsko.
Fool contributor Maxx Chatsko has no position in any stocks mentioned. Check out his personal portfolio or follow him on Twitter @BlacknGoldFool to keep up with his writing on energy, bioprocessing, and emerging technologies.The Motley Fool owns shares of CF Industries Holdings (NYSE:CF).
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