Why Potash Corporation of Saskatchewan Inc. May Turn Out To Be a Great Long-term Dividend Play

Two of the things dividend-focused income investors look for in a company are: (1) yield, and (2) stability and growth with respect to the stock’s yield.

Potash Corporation of Saskatchewan Inc. (TSX:POT)(NYSE:POT) is one company which dividend investors have largely exited over the past year due to the fact the company cut the dividend twice, giving the once-high-yield stock a current yield of only 2.4%.

A number of catalysts have led to the dividend cuts with Potash Corp. in recent years. Among these, persistently low global potash prices brought about by softening global demand combined with new supply being brought into the market from mines under development have provided significant headwinds to the ability of potash companies to continue to churn out profits.

As Potash Corp.’s earnings have been depressed, its ability to pay out dividends to investors has also been hampered, resulting in the company currently issuing quarterly distributions of only $0.10 per share compared with $0.38 per share as recently as January 2016.

Two things stand out to me about Potash Corp. for long-term investors looking for a company with the ability to grow its dividend over time. First, global demand for potash continues to be robust, and the vast majority of analysts covering the potash industry believe that a 3% annual growth rate for potash demand over time is a reasonable estimate.

Secondly, potash prices, which are currently depressed due to supply-and-demand fundamentals, may correct upward toward a longer-term average price due to continued consolidation in the industry. Potash Corp.’s proposed merger with Agrium Inc. (TSX:AGU)(NYSE:AGU) should provide additional leverage Potash Corp. and Canoptex (the consortium of North American potash producers) can use to limit supply and correct the supply/demand equation moving forward.