CVR Partners (UAN 0.08%) sells fertilizer, which management is very clear to point out is a commodity business. That is both good and bad, since it means that the financial results of the master limited partnership (or MLP) can swing wildly based on supply and demand dynamics. But to fully understand this investment, you need to also understand the distribution policy and its impact on performance.
Not so good
Getting right down to the numbers, a $1,000 investment in CVR Partners made one year ago would be worth roughly $930 today. That's right -- units of this MLP have declined about 7% or so over the last 12 months. That said, from their apex in late 2022 they are off by nearly 40%. So the trend here has been decidedly negative for a while. By comparison, the S&P 500 Index is up 15% over the past year, and is roughly near its highest levels over that span.
But there's an interesting twist here. CVR Partners has a variable distribution policy. According to the MLP, "It is currently the policy of the Board of Directors of the general partner of CVR Partners to distribute all of the available cash we generate each quarter, as determined by the Board of Directors." This is not a small matter, as this policy has had huge implications for unitholders over the past year.
To put some numbers on that, CVR Partners distributed $10.05 per unit in August of 2022, and another $1.77 in November of that year. That jumped back up to $10.50 in March of 2023 and $10.43 in May. Over the past 12 months, distributions totaled a somewhat shocking $32.75 per unit. You clearly have to include those distributions if you want to fully understand performance here.
The whole(r) picture
While some dividend investors use the income their portfolios generate for living expenses, the way that you can capture distributions in performance is by looking at total return. This assumes that all dividends and distributions are reinvested. Looking at total return for CVR Partners changes the story in a big way.
As the chart above shows, a $1k investment in CVR Partners one year ago would have grown into about $1,270 assuming reinvested distributions. That's a difference of $340, which is huge when you consider the $1,000 starting point and the fairly short one-year time period involved.
What's also interesting here, however, is to look at the total return comparison to the S&P 500 Index. The S&P 500 has a modest yield of around 1.5%, so the dividend hasn't provided much benefit to performance. As the chart below shows, the dividend added about $20 to total return over the past year. When you consider the bigger picture in the graph, CVR Partners' huge distributions allowed it to outperform the S&P 500.
Before getting too excited here, there are some important limitations that investors need to consider with regard to CVR Partners' generous distributions. While the distribution yield is listed at a sky-high 41%, it is a variable policy, so that number simply can't be relied on. Take note of that one $1.77 distribution over the past year when all of the other distributions were in the $10 space. Consistency is not what you can expect here. If the current distribution scales back into a lower range, future total returns will not be quite as exciting either.
Know what you own
Investing is a complicated business, and a single number is usually not enough to make good decisions. In this case, CVR Partners' huge yield needs to be taken with a grain of salt -- but so too does its unit performance, since total return is a more accurate picture given the high yield. All in all, CVR Partners has rewarded unitholders well over the past year, even though there's really no way to predict what will happen with its commodity-based business -- or distributions -- in the future.