Ok, for anyone interested in Income Investing, I'm curious why you WOULD NOT own this one.
UAN - a variable distribution MLP which makes fertilizer.
Fertilizer prices are elevated relative to the 2015-2020 cycle trough, and all the fertilizer companies are attractively valued relative to expected earnings and cash flows. Like, say, 3x or 4x free cash flows.
Since UAN is a variable distribution MLP, it is going to pay unit owners it's free cash flows in the form of quarterly distributions. I think it easily pays $35 in 2023. The unit price today is about $105. So it's yield in 2023 is going to be about 33%. Unlike most securities which yield 33%, UAN is not remotely close to going bankrupt; rather, it's delevered it's balanced sheet, reduced it's annual debt expense, primed it's manufacturing plants for maximum cost efficient output, and is about to gush money.
The next distribution will be declared at the end of February, about a month from now. I think the next three distributions will average about $10 each.
UAN's fertilizers are used mainly in growing corn (also wheat, but mainly corn). The latest US crop report on corn indicated corn stocks are near ten year low, and the 2022 harvest came in a bit below forecasts. The corn price has ticked up a bit (now $6.80) since this report came out last week.
So.....why would income investors NOT own this beautiful cash machine? The money flow starts in about six weeks, and will continue for the foreseeable future until corn prices dip back down to the low levels ($2.75-$3.50) of 2015-2020). |
