How Safe Is CVR Partners’ 28% Yield?

You learn the headline proper – a 28% yield.

That’s the present annual yield for CVR Companions (NYSE: UAN) based mostly on the distributions paid up to now 4 quarters. As a result of the corporate is a partnership, it pays distributions as a substitute of dividends.

The latest distribution, paid in March, was $10.50 per share. Not dangerous for a inventory within the low $90s.

The ammonia and urea ammonium nitrate producer has a variable distribution coverage.

Administration has acknowledged that the components affecting the distribution embody “working efficiency, fluctuations within the costs acquired for completed merchandise, capital expenditures and money reserves deemed vital or acceptable by the Board of Administrators of [its] basic associate.”

The corporate’s money out there for distribution, the measure of money stream that we use to investigate this partnership, has skyrocketed lately, except 2020.

Final yr, CVR generated almost $260 million in money out there for distribution whereas paying out $130 million. Within the first quarter of 2023, money out there for distribution was a powerful $111 million, so the yr is off to an incredible begin. With a low payout ratio, the distribution must be fairly massive.

However I wouldn’t get used to a 28% yield based mostly on the corporate’s monitor file. It omitted the distribution in 2020 and 2017 fully. And since the distribution is variable, it’s routinely lowered, typically drastically.

For instance, in March of final yr, CVR paid traders $5.24 per share, slicing the payout almost in half the following quarter to $2.26. In August, the distribution ballooned to $10.05, after which it plummeted to $1.77 in November.

In different phrases, you may’t depend on the distribution in any quarter. When you personal the inventory, benefit from the huge distributions once they are available in however don’t anticipate them to proceed.

There will certainly be reductions within the close to future.

Dividend Security Score: F

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