CVR Partners Stock: Come for 16% Yield, Stay for Market-Trouncing Gains

By John Whitefoot, BA | October 31, 2022

UAN Stock’s Outlook Bullish on Strong Industry Tailwinds

Some companies’ names make you want to take a look under the hood, but CVR Partners LP (NYSE:UAN) isn’t one of them. Don’t be turned off by its boring name, though. The partnership is an excellent, growth-oriented company with a stronghold in the U.S. nitrogen fertilizer industry. In fact, CVR Partners is the country’s only petroleum coke-based nitrogen fertilizer producer.

CVR Partners LP is a limited partnership formed by CVR Energy, Inc. (NYSE:CVI) to own, operate, and grow its nitrogen fertilizer business. Nitrogen fertilizer is critical to plant growth and reproduction. Soil often already includes nitrogen and other nutrients, but it’s not always enough to support healthy plant growth.

The company’s nitrogen fertilizer manufacturing facilities, which primarily produce ammonia and urea ammonium nitrate fertilizers, are located in the Corn Belt—in Coffeyville, KS, and East Dubuque, IL. (Source: “Investor Presentation: September 2022,” CVR Partners LP, last accessed October 27, 2022.)

Coffeyville Resources Nitrogen Fertilizers, LLC, a subsidiary of CVR Partners, directly owns and operates the Coffeyville nitrogen fertilizer plant. The plant is the only such operation in North America that uses a petroleum coke gasification process to make hydrogen, a key ingredient in the fertilizer’s manufacturing process. The 35-acre Coffeyville plant features a 1,300-ton-per-day ammonia unit, a 3,000-ton-per-day urea ammonium nitrate unit, and a gasifier complex with a capacity of 89 million standard cubic feet per day of hydrogen.

East Dubuque Nitrogen Fertilizers, LLC, also a subsidiary of CVR Partners LP, directly owns the East Dubuque nitrogen fertilizer plant, which uses natural gas as its feedstock to produce nitrogen fertilizer. This plant has a 1,075-ton-per-day ammonia unit and a 1,100-ton-per-day urea ammonium nitrate unit.

In 2021, CVR Partners’ fertilizer facilities produced a combined 807,000 tons of ammonia, of which 275,000 tons were available for sale. The rest was upgraded to be other fertilizer products, including 1.2 million tons of urea ammonium nitrate.

Thanks to industry tailwinds, including robust farm economics and elevated nitrogen fertilizer prices (driven by natural gas shortages in Western Europe and dislocations created by Russia’s invasion of Ukraine), CVR Partners LP has been reporting wonderful financial results.

Management expects fertilizer industry conditions to remain strong for several reasons, including:

The global supply of nitrogen fertilizer is tight, with high energy prices driving fertilizer production cuts
China is restricting fertilizer exports
Higher demand and prices for nitrogen fertilizer are being driven by lower grain and corn supply; increased grain and corn prices; and lower fertilizer supply
The U.S. is the lowest-cost environment to produce nitrogen fertilizer, due to relatively low natural gas prices and freight costs for imports
Nitrogen fertilizer is generally low on the cost curve for farmers

CVR Partners LP’S Net Income & Revenues Jumped in Second Quarter

In the second quarter, CVR Partners’ net income was $118.0 million, or $11.12 per share. That’s a huge improvement over the company’s second-quarter 2021 net income of $7.0 million, or $0.66 per share. Its revenues in the second quarter of 2022 were $244.0 million, up by 76% from $138.0 million in the same period of last year. (Source: “CVR Partners Reports Second Quarter 2022 Results and Announces a Cash Distribution of $10.05,” CVR Partners LP, August 1, 2022.)

CVR Partners’ second-quarter 2022 earnings before interest, taxes, depreciation, and amortization (EBITDA) were $147.0 million, almost triple the $51.0 million recorded for the second quarter of 2021.

During the second quarter of this year, CVR Partners LP’s average realized gate prices for urea ammonium nitrate improved by 134% year-over-year to $555.0 per ton. Its ammonia gate prices went up by 193% to $1,182 per ton.

During the second quarter, the company’s facilities produced 193,000 tons of ammonia. Of that, 50,000 net tons were available for sale, while the rest was upgraded into other fertilizer products, including 331,000 tons of urea ammonium nitrate. In the second quarter of 2021, CVR Partners LP’s fertilizer facilities produced 217,000 tons of ammonia, of which 70,000 net tons were available for sale, while the rest was upgraded into other fertilizer products, including 334,000 tons of urea ammonium nitrate.

Management Announces Cash Distribution of $10.05/share

Thanks to its high cash generation, CVR Partners LP was able to announce a big second-quarter dividend of $10.05 per unit, for a yield of 16%.

The company’s current dividend policy is for the general partners to distribute all of the available cash it generates each quarter. “Available” is the keyword. CVR Partners is a variable distribution master limited partnership, meaning its dividend changes from quarter to quarter. CVR Partners LP could even skip paying quarterly dividends—and it has: in 2018, 2020, and the first half of 2021. That’s not a big surprise, though. A global pandemic and recession can do that to a company’s operating performance.

That means CVR Partners stock isn’t the kind of stock you can just buy and forget. You need to pay attention if you’re in it for the ultra-high-yield dividends. Right now, though, the company is firing on all cylinders and expects its near-term financial growth drivers to persist.

CVR Partners Stock Crushing Broader Market

In addition to helping juice the company’s distribution, CVR Partners LP’s outstanding financial results and bullish outlook have been helping UAN stock rip significantly higher.

As of this writing, CVR Partners stock is up by 85% year-to-date and 97% year-over-year. In comparison, the S&P 500 is down by 22% year-to-date and 18% year-over-year.

Chart courtesy of StockCharts.com

The Lowdown on CVR Partners LP

CVR Partners LP is a great agricultural fertilizer company that has been doing everything right. It has been reporting high revenue and earnings growth, which has helped fuel its high-yield quarterly dividends.

Thanks to positive industry trends, the company’s near-term outlook is optimistic. And with a payout ratio of just 42%, the company has more than enough breathing room to increase UAN stock’s dividend.