Over the past three years PotashCorp (NYSE:POT) has grown its dividend by a staggering 950%. Of course that is off a very low base, but it's still some incredibly quick growth. Looking ahead, investors can expect even more dividend growth from a company that's more known for helping plants grow.
Out yielding its peers
At a yield of about 4.4% Potashcorp already has a best in class dividend yield. As the following slide shows, its fast growing dividend over the past few years has seen its yield outgrow that of all of its rivals.
The chart on the right really tells the story. Though I would like to point out that Agrium (NYSE:AGU) recently raised its dividend by 50%. That being said its current yield is just 3.6%, which very solid is still quite a bit less than the yield of PotashCorp.
In looking at its other peers, Mosaic (NYSE:MOS) actually just declared a static dividend, while CF Industries (NYSE:CF) and Intrepid Potash (NYSE:IPI) pay such a low or no dividend that neither are worth a dividend investor's addition. PotashCorp's dividend, on the other hand, has only just begun to grow.
Seeds of dividend growth
PotashCorp has spent much of its past plowing most of its available cash back into its business to grow. This has included investments to grow its capacity, lower its costs and acquire strategic interests in fertilizer producers across the globe. Those investments have been paying off, which is why the company has been able to grow its dividend at such a high rate these past few years. That being said, the seeds have been planted for the company to continue to grow its dividend for years to come.
Looking out over the next few years PotashCorp expects to double its potash sales volumes. At the same time it expects to see its per-tonne cash costs drop by 25%. Finally, the company will see its capex subside by nearly a billion dollars in the future as it goes from growth spending to a focus on sustaining its business. Add it all up and that's the recipe for prodigious free cash flow that the company can send back to investors in the form of an ever increasing dividend.
The right mix to keep profits growing
The final reason why PotashCorp is doing a better job at growing its yield is where it has focused its attention. While potash is in its name, the company is actually a lot more diversified than that. For example, it also produces phosphate, with the key profit driver being what market it sells into. The following chart really tells that story.
Notice how PotashCorp sells a higher volume than its rivals in the higher priced Feed & Industrial segment. It sells about a third of its volumes to that market while Mosiaic is less than 10%, while neither Agrium nor CF Industries sell into that higher priced market. Intrepid Potash, on the other hand, has no product diversity as it is a potash pure-play. It's PotashCorp's ability to capture additional cash flows like this that enable it to have the excess cash to ship back to shareholders.
Potash has the potential to become a dividend investor's dream stock. The company has a history of dividend raises and a future that should see it flush with cash to keep that dividend growing. It's a rock solid dividend stock.
Fool contributor Matt DiLallo has no position in any stocks mentioned. The Motley Fool owns shares of CF Industries Holdings and PotashCorp. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.