Saturday, April 20, 2013

Watch List Company: Potash Corp. of Saskatchewan


In previous posts, I’ve mentioned that I have a watch list of about 20 companies that interest me, but that I haven’t decided if I’m willing to take the plunge to invest in. One of these watch list companies that has been looking more interesting lately in Potash Corp. of Saskatchewan (“Potash”).  For those of you not familiar with this Canadian company, Potash mines and produces fertilizers that it sells worldwide.

Here are the main reasons I’m considering the company:
-          It’s the type of dividend growth company that is rare in Canada. In the last three years, it has went from paying $0.13 per share a year in dividends to $0.70 a share.
-          The company has a very low current dividend payout ratio of 23%, which leaves it plenty of room to boost dividends in the future.
-          As a mining / fertilizer company, it would help diversify my Canadian holdings away from banks, telecos and REITs.

So what’s holding me back from investing in Potash?
-          The company operates in the mining sector, which I know little to nothing about. Even though Potash is a leader in their business, I’m not sure I want to invest in a company I don’t understand.
-          Even with the spectacular dividend growth over the last three years, Potash is still only yielding 2.9%, and that’s despite a recent dip in the stock price. I rarely buy into a company yielding less than 3% unless it has a compelling story.
-          Potash’s revenue and earnings over the last five years have been pretty volatile. This has a lot to do with Potash being a commodity seller, and their inability to influence the market price of their product.

Having written out this brief analysis, I’m still uncomfortably on the fence about Potash. I’ll keep it on my watch list, but it would likely take another drop in the stock price or a dividend boost before I bought. 

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