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Murphy Oil Corporation (MUR), Potash Corp./Saskatchewan (USA) (POT): Not All Dividends Are Created Equal

A bumper crop
Have you noticed crop prices rising over the past few years? Without the help of companies such as Potash Corp./Saskatchewan (USA) (NYSE:POT), things would probably be a lot worse. The triumvirate of fertilizers that Potash mines adds diversity to the revenue stream that the likes of CF Industries Holdings, Inc. (NYSE:CF) and Mosaic Co (NYSE:MOS) don’t enjoy, as they concentrate on just one or two fertilizer options.

An improving balance sheet and consistent cash generation from its operations have allowed management to reward investors with annual dividend increases over the past three years. Traditionally, the payout ratio for Potash Corp./Saskatchewan (USA) (NYSE:POT) has remained below 10%, but a slight dip in EPS and a considerable increase in the dividend now place it at 22.5%. However, I view this development in a very positive light, because it radiates confidence, and any uptick in EPS will bring the ratio back in line with historical norms.

Refined dividend payments
Barely making the cut was Murphy Oil Corporation (NYSE:MUR). This company operates internationally as an “integrated” oil and natural gas company, although in reality, its exploration and production operations merely supplement its revenue stream with 16% of total 2012 sales, leaving the lion’s share attributable to its U.S. and U.K.-based downstream business.

A steady stream of business has allowed Murphy Oil to increase its dividend per share at a compound annual growth rate of nearly 12% over the past five years, a time frame in which the entire refining industry has been fighting to come back from the financial collapse of 2008. Stable cash from operations has made Murphy Oil Corporation (NYSE:MUR)’s recovery possible, along with considerable capital expenditures to fund growth without taking on an inordinate amount of debt.

Rounding out the bunch is Delek US Holdings, Inc. (NYSE:DK). After slogging through 2009 and 2010, the downstream operator has rebounded nicely to achieve record revenues and net income over the past two years. Delek offers a very similar 2% to that of Murphy Oil, but its payout accounts for only 4.6% of its EPS. So on a dividend sustainability basis, it appears Delek holds the ace up its sleeve.

A diversity of sustainable dividends
Exposure to multiple industries and global locations is a vital component of portfolio construction. The companies I’ve mentioned here encompass multiple sectors and have sales all around the globe. If your goal is to create a well-rounded income portfolio, these would be great places to begin looking.

The article Not All Dividends Are Created Equal originally appeared on and is written by Taylor Muckerman.

Taylor Muckerman has no position in any stocks mentioned. The Motley Fool recommends Sherwin-Williams and owns shares of Hi-Crush Partners.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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