Will Terra Nitrogen Company, L.P. (TNH) Help You Retire Rich?

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From a fundamental standpoint, Terra Nitrogen really couldn’t have asked for a better year than 2012. With warm winter weather, the company benefited from farmers starting to plant crops early, and the resulting jump in domestic fertilizer use combined with strong emerging-market demand goosed revenue substantially.

Yet arguably, the biggest tailwind for Terra came from low natural-gas prices. Natural gas provides the nitrogen that eventually gets incorporated into Terra’s fertilizers, so low input costs mean higher margins for nitrogen-based fertilizer. By contrast, Mosaic Co (NYSE:MOS) and Potash Corp./Saskatchewan (USA) (NYSE:POT) both suffered from tighter margins as mining costs for potash rose, making them less competitive.

For those who like big dividends, Terra and fellow master limited partnerships Rentech Nitrogen Partners LP (NYSE:RNF) and CVR Partners LP (NYSE:UAN) promise hefty yields for their unitholders. Some may point to high payout ratios for fertilizer MLPs as potentially putting a lid on future distributions, but at least for now, Terra is in the best shape from an earnings standpoint to cover the money it pays to its investors.

For retirees and other conservative investors, Terra Nitrogen is an obvious way to invest for the demographic trend toward higher food demand around the world. Although the shares look pricey on a normalized basis, they trade off their all-time highs, possibly providing a good entry point for retirement investors seeking to add agricultural exposure to their portfolios.

The article Will Terra Nitrogen Help You Retire Rich? originally appeared on Fool.com and is written by Dan Caplinger.

Fool contributor Dan Caplinger and The Motley Fool have no position in any of the stocks mentioned.

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