Potash Corp. of Saskatchewan has raised its quarterly dividend payment by 50 per cent, a sign that world’s largest maker of fertilizers is confident of strong demand ahead.
Saskatoon-based Potash Corp. said its board of directors approved an increase to the quarterly cash dividend to 21 cents (U.S.) a share, from 14 cents previously.
“This dividend increase – the third in the past two years – not only reflects the strength of our cash flow today, but the confidence we have in the drivers of our business over the long term,” said Bill Doyle, the chief executive officer and president of the company that fought off a hostile, $39-billion takeover approach from Australian miner BHP Billiton PLC barely two years ago.
Mr. Doyle has long insisted that rising global population and increasing affluence in countries like India and China will spell increased demand for agriculture and its key inputs.
Potash Corp. controls about 20 per cent of the world’s production capacity for potash, a key nutrient that can be mined or manufactured and which farmers use to strengthen root systems to make them more drought-resistant.
The company is a major producer of potash and two other key crop nutrients for fertilizers, phosphate and nitrogen, all of which could witness a surge in demand on the back of one of the worst droughts on record in the U.S. Midwest over the past summer.
A drop in U.S. corn crops in the 1980s, for example, saw a 20-per-cent rise in the use of fertilizers.
“We think the most recent increase highlights Potash Corp.’s strong cash flow generation and the board’s comfort with its financial outlook,” RBC Dominion Securities wrote in a report. “The dividend increase should be well-received by investors. As the majority of Potash Corp.’s capital spending is behind it, the use of cash has become a prominent question among shareholders.”
Potash Corp. is also hoping that demand will pick up after farmers in India struggled to afford the nutrient amid prices that have risen on the back of reduced government subsidies for potash and phosphate, and as the rupee depreciated.
Mr. Doyle said in July he was hopeful India’s government would boost subsidies to farmers again as the country faces an election in 2014.
The dividend rise comes even after Potash Corp. was stung by an impairment charge in the second quarter, when profit sank 38 per cent from a year earlier. Excluding the charge, Potash Corp. actually had record earnings.
Potash Corp. shares rose 0.7 per cent in Toronto to $41.22 (Canadian), paring earlier gains of nearly 2 per cent after the dividend hike was announced.