Fertilizer maker Agrium (AGU) has bumped up its target dividend payout ratio as it sees strong cash flow generation following the completion of its production capacity expansion projects this year.
The Canada-based company said that it has raised its dividend payout ratio to 40% to 50% of free cash flow from its earlier targeted payout of 25% to 30%. Agrium also added that the Toronto Stock Exchange ("TSX") has accepted its ‘Notice of Intention’ to make a normal course issuer bid, pursuant to which, the company plans to purchase up to 5% (around 7.2 million) of its issued and outstanding shares from time to time over the next 12 months.
Agrium can purchase up to 117,313 common shares (25% of its average daily trading volume during the six months ended Dec 31, 2014) per day on the TSX, subject to specific exemptions available under applicable Canadian rules.
Agrium is authorized to make purchases during Jan 26, 2015 to Jan 25, 2016, or until such earlier time as the bid is completed or terminated at its option. The company will make the purchases on the open market through TSX, NYSE and/or alternative Canadian trading platforms at the prevailing market price. Shares purchased through the bid will be returned to treasury for cancellation.
The hike in the payout ratio and the bid for the repurchase of shares are in sync with Agrium’s strategy to deliver greater returns to its stakeholders and reflects the strength of its earnings base and strong cash flow generation. The company sees a significant increase in its free cash flow generation with the completion of its major capacity expansion projects for nitrogen and potash.
Agrium’s shares shot up around 5% to close at $107.20 on Jan 22.
Agrium saw its revenues and profit rise year over year in the third quarter of 2014. Sales were driven by gains across retail and wholesale businesses.
Agrium, which is among the major fertilizer makers along with Potash Corp. (POT), Mosaic (MOS) and CF Industries (CF), follows a strategy to grow along the value chain through a combination of acquisitions and organic development. It stands to gain from overall healthy fundamentals for the agriculture and crop input market.
However, the pricing environment is expected to remain soft in the company’s wholesale business. It is also faced with issues such as logistical constraints and plant outages.
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