Potash Corp.’s dividend increasingly at risk amid weak market

June 16, 2016

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Investors have kept a wary eye on Potash Corp. of Saskatchewan Inc.’s dividend this year. The fertilizer giant plans to pay out US$1.00 a share in 2016, but at the same time, it is guiding for earnings of just 60 to 80 cents U.S. a share.

Accountability Research analysts Harriet Li and Mark Rosen noted that potash prices have continued to deteriorate in 2016. They also warned that if a long-delayed Chinese potash contract is not settled soon, prices may fall further and global shipments of the crop nutrient may fall below Potash Corp.’s expectations.

None of that bodes well for the dividend.

“We caution that continued deterioration in the fertilizer markets puts the current dividend at risk,” the analysts said in a note.

Potash Corp.’s dividend yield is nearly six per cent, which is relatively high for a natural resource company.

Of course, a Chinese contract settlement could be a positive catalyst for the potash market. But Li and Rosen noted that the contract may not be settled until well into the summer. They said China is not facing any near-term potash shortage, and a national holiday in mid-June could delay a settlement.

The analysts maintained a hold rating on Potash Corp. shares, with a price target of $23 a share.

Category: General