While the MLP space is dominated by the oil and gas sector, in last week’s article we began to explore some of the more exotic master limited partnership offerings. This week we continue our exploration of nontraditional MLPs by looking at the partnerships supplying fertilizer.Rentech (Nasdaq: RTK) has been around for more than a decade, and it has shifted strategies several times. Full disclosure: Rentech’s Chief Technology Officer Harold Wright is a former manager of mine when we were both at ConocoPhillips, and I have visited Rentech’s facility in Commerce City, Colorado.
For most of Rentech’s existence, the company has sought to commercialize alternative fuels. At one time it had ambitions to build a large coal-to-liquids (CTL) plant, but federal legislation ultimately nudged it instead into the biomass-to-liquids (BTL) space. The company did build a BTL demonstration plant, but ultimately shut it down and has now refocused its efforts on becoming “one of the largest wood processing companies in the world.”
During its interesting journey as a company, Rentech acquired two ammonia nitrogen fertilizer facilities, which turned out to be a profit center that funded the alternative energy research. In November 2011, Rentech spun off this fertilizer business into an MLP called Rentech Nitrogen Partners LP (NYSE: RNF).
In the months leading to the spin-off, RTK’s market capitalization was about $200 million. Rentech maintained 60 percent ownership of RNF, and three months after the spin-off RTK’s market cap had risen to $400 million, while investors had bid RNF up to $1 billion. Interestingly, RTK’s share of RNF was worth more than RTK’s entire market cap, a situation that persists. The market currently values Rentech at $482 million, while the valuation of Rentech Nitrogen Partners makes RTK’s 60 percent stake in RNF worth slightly ! more than $600 million — another illustration of the premium investors have been willing to pay for MLPs.
RNF owns two fertilizer production facilities, one in East Dubuque, Illinois and the other in Pasadena, Texas. The partnership is a pure play on nitrogen fertilizer, which is produced from natural gas and which is therefore subject to natural gas price volatility. The Illinois plant is in the heart of the Corn Belt, and as a result will also be subject to corn price volatility (i.e., high corn prices will mean higher fertilizer demand, and vice versa). Modifications to the Renewable Fuel Standard, which supports corn prices by encouraging the production of ethanol, could significantly affect demand for nitrogen fertilizer.
RNF had a solid 2012 when natural gas prices were lower, but the recovery of natural gas prices this year has eaten into margins. This, as well as some unscheduled outages led RNF to recently reduce its 2013 distribution guidance to $2.05-2.20 per unit from $2.60 previously. The partnership already paid out $0.50 in Q1 2013 and $0.85 in Q2, which leaves $0.70 to $0.85 to be paid for the rest of 2013. At the current price, this implies an annualized yield for the final two quarters between 5.3 percent and 6.4 percent. But fertilizer is a seasonal business, and including the two distributions already paid for 2013 bumps the 2013 yield to roughly 8 percent.
Rentech has two competitors in this space. Terra Nitrogen Company LP (NYSE: TNH) owns and operates a nitrogen fertilizer plant in Oklahoma. The general partner is a wholly owned subsidiary of CF Industries Holdings (NYSE: CF), the second largest nitrogen fertilizer producer in the world.
Terra Nitrogen’s claim to fame is the extraordinary performance of units. Over the last 10 years, the price rose from approximately $5 to the current level above $200. Like RNF, Terra Nitrogen profits from historically low natural gas prices. Thus its most recent distribution, equivalent to 7.9 percent on an annualized basis, might be reduced if the cost of its main input rose dramatically.
One other risk factor for US-based fertilizer manufacturers is the threat of cheap Chinese exports. China produces fertilizer predominantly from coal instead of natural gas, and with natural gas prices increasing in the US and global coal prices declining, Chinese fertilizer has become much more competitive.
Enter CVR Partners LP (NYSE: UAN), the only company in the US to produce fertilizer from petroleum coke (petcoke). Petcoke is a byproduct of petroleum refining, and prices are usually set off coal prices, since these two products compete in the same niche. Thus the same dynamics that currently threaten the distributions of Rentech Nitrogen Partners and Terra Nitrogen Company play in CVR Partners’ favor.
CVR Partners’ fertilizer plant is located in Coffeyville, Kansas, adjacent to the refinery owned by CVR Refining (NYSE: CVRR). CVR Energy (NYSE: CVI), majority-owned by Carl Icahn via Icahn Enterprises (NYSE: IEP), is the general partner and owns most of the units for both CVR Partners and CVR Refining.
CVR Partners’ results are up across the board in 2013. Sales rose 6.6 percent in the first half compared with the first half of 2012, while EBITDA was up 10 percent, and distributable cash flow was up 6.3 percent. But unit prices have been weak, registering a decline of 25 percent year-to-date. This has pushed the yield of CVR Partners up to the range of 9.8 percent to 10.9 percent based on the most recent guidance.
Investing in fertilizer MLPs is not for everyone. There are special risks that must be recognized, and that won’t be acceptable to the more conservative income investors. But a growing global population means growing fertilizer demand, and patient investors who are selective with their entry points may find this sector to be richly rewarding.
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Toby Talbot/AP WASHINGTON -- U.S. service firms expanded in July at the fastest pace since February, fueled by a brisker month of sales and a jump in new orders. The increase suggests economic growth could be picking up after a weak first half of the year. The Institute for Supply Management said Monday that its index of service-sector growth rose in July to 56.0, up from 52.2 in June. Any reading above 50 indicates expansion. The survey covers businesses that employ 90 percent of the workforce, such as retail, construction, health care and financial services. A measure of business activity, which includes current sales, rose to 60.4. That's the highest since December and was driven in part by faster home construction. And a gauge of new orders, which indicates sales over the next few months, increased to 57.7 -- a five-month high. Jennifer Lee, senior economist at BMO Capital Markets, noted that 16 of the 18 industries surveyed reported growth in July, "encouraging news for the broader U.S. economy." Paul Dales, senior U.S. economist at Capital Economics, said the July gains in the service sector, along with a solid month of manufacturing growth, suggest the economy is growing at an annual rate of 3 percent in the July-September quarter. That's nearly double the rate in the April-June quarter. One concern is that a measure of employment at service companies fell in July. That echoed last week's government employment report that showed hiring has slowed. Employers added 162,000 jobs last month, the Labor Department said Friday. That's down from 188,000 in June. Nearly all of the hiring took place at service firms. And most new jobs were in low-paying industries -- half were at retail business or restaurants and bars. Growth in the service industry depends largely on consumers, whose spending drives roughly 70 percent of economic activity. On Friday, the government said consumers increased their spending in June at the fastest pace in four month. The economy grew at a tepid 1.7 percent annual rate from April through June. That's up only slightly from the 1.1 percent annual rate in the previous quarter and the third straight month of subpar economic growth. Still, the rise in consumer spending and service activity follows other reports that point to stronger growth. Home sales and prices continue to rise, and Americans' confidence in the economy stayed last month close to a 5½-year high. U.S. factories have begun to rebound after slumping at the start of the year. A separate ISM released last week showed manufacturing activity jumped in July to the highest level in two years, reflecting a surge in new orders, increasing hiring and rising factory output.
Getty Images From birth, we're raised thinking mommy and daddy know best. They have our best interests in mind when they scare away tattooed teenage boys, keep the liquor under lock and key, and set our curfews earlier than those of all our other friends. Unfortunately, when it comes to money, mommy and daddy might be leading you astray. Financial literacy rates in the Millennial generation are abysmal. This year the Treasury Department and Department of Education tested the financial literacy of 84,000 high schoolers, who scored an average of 69 percent. With little to no financial literacy taught in our education system, children have no choice but to learn from dear old Mom and Dad. But if Mom and Dad were never taught -- or never bothered to learn -- how to appropriately handle money, they sure aren't the ones who should be giving financial advice. If you've ever heard your parents say, "Don't get a credit card," they were wrong. Credit cards are one of the easiest ways to build your credit score. Granted, establishing new credit only makes up 10 percent of your score, but if you aren't paying off loans yet, it might be the only way for you to establish a line of credit. Length of credit history makes up 15 percent of your score, so the longer you've had a "healthy" history, the higher your score will typically be. Parents are often reluctant to give their college-age children access to plastic, but if you know how to treat your card right, it'll pay off. When you graduate and start looking for an apartment, a respectable credit score is important to your landlord, while a lack of one can prevent you from signing a lease. If you've ever heard your parents say, "Keep a monthly balance on your credit card," they were wrong. Somehow, parents heard a rumor that keeping a monthly balance on your credit card will help your credit score. They spout some nonsense about how paying the minimum shows responsibility and increases your score. False. Carrying a balance does nothing to improve your score and instead costs you more money because you're accumulating interest on the balance. Instead, pay off your credit card in full each month (which means not charging more to the card than you know you can afford). If you've ever heard your parents say, "X,Y or Z college is worth the student loan debt," they were wrong. Millennials are drowning in student loan debt. As a generation, our debt is so horrific it's predicted to delay our retirement age until 73. For many millennials, it's too late to turn back now; the debt has already been accumulated. The only hope is to diligently, or quickly, pay down debt, and simultaneously start figuring out how to save for retirement from the moment you get your first paycheck. The other option is to start a side hustle and increase your influx of cash. For the younger millennials and Generation Z, there's still hope. When considering college, apply to every scholarship you qualify for. Sometimes your GPA doesn't matter as much as your height or your ability to call ducks. It's a good idea to set your pride aside during your college-decision-making process and really evaluate whether the ROI of your major at X, Y or Z school is worth tens of thousands of dollars in debt. If not, consider state schools, smaller liberal-arts colleges, or simply choosing the college that offered you the best financial package. If you've ever heard your parents say, "Don't invest in the stock market; it's just gambling," they were wrong. Yes, 2008 was a tough year, and the market took a tumble. Boomers lost money and some saw their retirement accounts take a hit. Unfortunately, this led to the millennial generation developing a great mistrust of the stock market. While we might be reluctant to get in bed with the stock market, it's certainly still willing to love us. The greatest advantage for an investor is time, and time is exactly what 20- to 30-year-olds possess. If you're not quite ready for index funds, mutual funds or buying individual stocks, you should at least contribute to your company-matched 401(k)s or open a Roth or Traditional IRA. If you've ever heard your parents say, "Have babies," they were wrong. Starting a family is certainly a personal choice, but not one you should be making based on parental pressure. Raising a child is a tremendous financial commitment. In 2012, it cost middle-income parents $286,860 to raise a child from birth to age 17. If you're willing to pay for college in full, then you can tack on an extra $100,000 or more. For many millennials stuck in the red, starting a family could complicate an already stressful financial situation. Parents mean well, but sometimes their advice comes from a negative personal experience or a lack of knowledge. Instead of always trusting their financial advice, be sure to educate yourself and check against credible sources.
Getty Images It's that time again -- the time when clients call their financial advisers with panic in their voices asking, "Is this the correction? Should we sell everything?" The stock market's daily gyrations -- up, down and sideways -- have outperformed a salsa dancer's hips. On Thursday, just one day after the market had its best day of 2014, it had its worst day of the year. And on Friday, it fell again, capping its worst week since May 2012. Since the 2008 crash, U.S. stocks have, overall, performed very well. During 2013, you didn't need to be a good stock picker to make big profits. You could close your eyes, put all your money in just one investment -- such as an S&P 500 (^GPSC) index fund -- and end the year with a 30 percent gain. I'm of the opinion those days of easy gains are over. I've been saying so for quite a while and have been managing my clients' brokerage and individual retirement accounts accordingly. Don't get me wrong, I'm still bullish on U.S. stocks over the long term and still think stocks could end the year slightly positive. But for investors who can't bear to see the balance on their monthly statement lower than the previous month's, I offer three strategies to get you to the end of the wild ride without throwing up. 1. Sell Some Stocks You most likely have stocks in your portfolio that have run up in price since you purchased them. Now is as good time as any to turn paper gains into real gains by selling some winners. If you think the market is going to tumble further, you'll want cash on hand to buy more stocks at low prices when the dust settles. That's what I did during 2008 and 2009. Just like I go through my closet once a year and throw out clothes that I'll never wear again, I went through my portfolio and sold stocks that either didn't have growth potential or didn't generate dividends, and used the cash to replace them with high-quality, dividend-paying stocks when they dropped to bargain prices. If you not sure which of your stocks to keep and which to sell, consult a financial adviser. A variation on the selling stocks theme is to place stop-loss orders on your holdings. That way if the market turns around and heads back up, you don't sell your stocks too early. But if the market starts to seriously tank, you're you have an autopilot order in place to get you out of various equities at prices that are still higher than what you paid for them. It takes only a few minutes to set up stop-loss orders in your online account if you manage your own money. 2. Sell Call Options on Your Stock If your savings is invested in mutual funds, the call options strategy isn't available to you. But if you own individual stocks or exchange-traded funds, you can sell call options and generate income. The strategy is referred to as "covered call writing." Let's say I own 100 shares of a popular tech company's stock that is trading at $100 per share. I already have a 30 percent unrealized gain on the stock, which I purchased more than a year ago. I could either sell the stock today for a 30 percent gain or I could sell a call option that expires one month from now. (Shorter and longer periods are available.) By selling that call option, I am obligated to sell my stock at $100 a share anytime between now and when the option expires, should the call option buyer exercise his right to buy my stock from me. In exchange, I receive $360 in my account today. The $360 is real money. I can take it out and spend it or reinvest it. At the end of 30 days, either I will have sold my 100 shares of stock at $100 a share or I will still own my stock should the market price be lower than $100 per share. In either case that $360 is mine to keep. A common practice of covered call writers is to sell call options on the same stock and generate income every month. This strategy is similar to when you buy an investment property and rent it out for monthly income. Landlords understand that the price of the house or apartment may go down before it goes back up, but as long as they are renting it out for income, they can tolerate changes in appraised values. If you already own stocks in your portfolio, this strategy allows you to generate ongoing income from your asset until you sell it. You can learn to write covered calls on your own, but many investors -- due to lack of time or interest -- prefer to outsource this function to a money manager. I'm one of the few female money managers in the country who specializes in this strategy, but a growing number of financial advisers are adding this service to their practice. You just need to find them and make sure they are experienced. 3. Reallocate Your Portfolio and Diversify Among Asset Classes Some analysts believe that relative to other countries, U.S stocks are overvalued. However, there are bargains to be had in international developed and emerging markets. If you want to buy low and sell high, one way to do it is to identify securities that are undervalued. A low-cost and easy way to invest in international stocks is to purchase shares in ETFs that holds stock in many companies in whatever country or region you desire. The prices of many emerging market ETFs have been pummeled by fears of declining global economic growth and the strong U.S. dollar. The same goes with certain developed European country ETFs. Although these investments are risky in the short term as the global economy could weaken and political unrest deepen, over the long term they could benefit many investors. If you are afraid of stocks, I wouldn't suggest sticking all your money in bonds, because when the Federal Reserve Board begins raising interest rates (probably in the first half of 2015), bond prices in your portfolio will likely decrease. If you can't hold the bonds until maturity because you need access to cash, you might end up having to sell them for less than you paid. Before we began working together, many of my clients weren't aware that there are other ways to invest money besides stocks, bonds and real estate. Other frequently-purchased asset classes include commodity ETFs, real estate investment trusts, and master limited partnerships. When you invest in the stock market, you are not limited to investing in only U.S. stocks. A plethora of publicly held security types are available to round out a portfolio, add diversification, and reduce volatility. To generate a return on your investment, you must take risk. For most investors, that means riding out the inevitable ups and down of the market. And if you are patient over the long term, you'll slowly build wealth. But if you want to minimize the impact of the down times to your financial (and emotional) health, consider following one or more of the three strategies above. More from Laurie Itkin
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Alamy Looking forward to filing your 2013 taxes so you can get that big, fat tax refund check you've been waiting for? You're not alone. But does the idea of that check make you quite as happy when you remember that it represents money you never really had to pay in the first place? Unless you're getting back more than you paid in (via refundable tax credits), your refund is simply Uncle Sam paying you back money you loaned him, interest-free, by overpaying your taxes throughout the year. It's your money -- so why not keep control of more of it? Whatever it is you're looking forward to using your annual refund check for, you could do it earlier if you weren't forcing yourself to wait for the government to process your refund first. How to Keep Your Money In Your Wallet You're in control of how much money you send to Uncle Sam. Your goal should be to pay what you owe when you owe it, while being sure to pay at least enough and quickly enough to be covered by one of the IRS's "safe harbor" provisions. As long as you're covered by at least one safe harbor rule, you can settle the rest of your taxes by the April 15 deadline without any additional interest or penalties. Adjusting how much you pay in advance depends on how you pay your taxes throughout the year: If you directly pay your taxes quarterly, you should already be using IRS Form 1040-ES to estimate and pay what you owe. If your employer withholds taxes on your behalf, you can send your payroll department an updated form W-4. Likewise, if a major source of your income is a pension or annuity, you can send the pension administrator an updated form W-4P to update your withholdings from the pension. If you withdraw money from an IRA, your IRA custodian should provide you with a form to use to adjust your withholding. The Safe Harbor Rules
) has been cut to “Equal Weight” at Morgan Stanley on a valuation call, based on the firm’s $57 price target on ABBV. The company currently has a dividend yield of 2.95%.
Crown Equity Holdings Inc. (CRWE)