Terra Nitrogen hits 52 week high; dividend yield decreases. When should you buy?

Terra Nitrogen hit its 52 week high today at $132.98.  The move upward in price has dropped the dividend yield down to 4.09%, but some of the online investing sites compute the yield wrong because of the special dividend that TNH paid last quarter.  For example, Google Finance reports Terra Nitrogen’s current dividend yield at 7.49.  TNH is paying a $1.36 quarterly dividend that equates to $5.44 annually.  $5.44 dividend divided by $132.98 market price equals a yield of 4.09%.

Motley Fool writer Dan Dzombak dug up some reassuring dividend safety info on Terra Nitrogen (TNH) which you can read below.  I agree with his conclusions on the dividend’s safety.

I still think that Terra Nitrogen is approaching the speculative price territory.  See my recent article:

http://www.myhighdividendstocks.com/high-dividend-stocks/two-views-of-terra-nitrogen-tnh-value-or-investment#more-440

Terra Nitrogen would become a high dividend stock again at the price of $90.66 per share.  I would wait until the stock falls somewhere between $90 and $70 to purchase.  A general stock market correction will take Terra Nitrogen down along with many other medium dividend stocks.  You can see in this chart how recently TNH traded in the $60’s:

http://stockcharts.com/h-sc/ui?s=TNH&p=W&b=5&g=0&id=p69438073925

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Be seeing you!

By Dan Dzombak

Motley Fool

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updated 6/12/2011 7:30:00 AM ET 2011-06-12T11:30:00

Dividend investors know that it pays to follow how much of a company’s money goes toward funding its payouts. A nice yield now won’t matter much if the company can’t keep making those payments going forward.

Here, we’ll highlight a given company and its closest competitors to see just how safe their dividends are, with a little help from three crucial tools:

  • The interest coverage ratio, or earnings before interest and taxes, divided by interest expense. The interest coverage ratio measures a company’s ability to pay the interest on its debt. An interest coverage ratio less than 1.5 is questionable; a number less than 1 means that the company is not bringing in enough money to cover its interest expenses.
  • The EPS payout ratio, or dividends per share divided by earnings per share. The EPS payout ratio measures the percentage of earnings that go toward paying the dividend. A ratio greater than 80% is worrisome.
  • The FCF payout ratio, or dividends per share divided by free cash flow per share. Earnings alone don’t always paint a complete picture of a business’ health. The FCF payout ratio measures the percentage of free cash flow devoted toward paying the dividend. Again, a ratio greater 80% could be a red flag.

Let’s examine Terra Nitrogen and three of its peers.

Company

Yield

Interest Coverage

EPS Payout Ratio

FCF Payout Ratio

Terra Nitrogen

15.4%

962.7

64.5%

64.4%

Mosaic (NYSE: MOS)

0.3%

54.3

4.0%

7.3%

Potash Corp. (NYSE: POT)

0.5%

23.5

7.3%

38.4%

Scotts Miracle-Gro (NYSE: SMG)

1.9%

8.8

23.6%

17.8%

Source: Capital IQ, a division of Standard & Poor’s.

With an interest coverage of 962.7, Terra Nitrogen covers every $1 in interest expenses with over $900 in operating earnings, meaning the company barely has any debt at all. Given that its EPS payout ratio and FCF payout ratio are below 70%, you shouldn’t have to worry that Terra Nitrogen will need to cut its dividend anytime soon.

Link to original article: http://www.msnbc.msn.com/id/43370848/ns/business-motley_fool/

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Published in: on June 14, 2011 at 7:29 pm  Leave a Comment  

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