Potash Corporation of Saskatchewan Inc.: What to Expect in 2016

Potash Corporation of Saskatchewan Inc. (TSX:POT)(NYSE:POT) had a rough 2015. Will 2016 be any better?

The Motley Fool

Just like most other commodity producers, Potash Corporation of Saskatchewan Inc. (TSX:POT)(NYSE:POT) had a rough 2015. As a result, its Canadian-listed shares declined by more than 40%. The stock now trades at prices not seen since 2007.

So will 2016 be any better? What should shareholders expect in the new year?

The rough market will continue

It’s no secret why Potash Corp.’s share price fell so far: potash prices have plummeted to US$250 per tonne. There are a couple of reasons why this has happened.

First of all, crop prices have fallen mainly due to a bumper crop year in 2014. This disincentivizes farmers from using greater amounts of potash.

Secondly, currency has worked against Potash Corp. This may seem counterintuitive, since the company sells its product in U.S. dollars but incurs its costs in weakened Canadian dollars. But the company’s biggest competitors come from Russia and Belarus, two countries whose currencies have depreciated even faster.

The news doesn’t look any better going in to 2016. Supply should remain plentiful, and demand is not growing fast enough to keep up. You should expect prices below US$300 per tonne for the foreseeable future.

Possible royalty changes

Earlier this year, the province of Saskatchewan made a significant change in its tax policy, a move that Potash Corp. said would reduce its pre-tax earnings by $75-100 million this year. Saskatchewan also promised to review its potash royalty regime.

A change in royalties would not necessarily be a bad thing for Potash Corp. The current regime is overly complex and badly in need of reform. In any case, we are likely to see some changes in 2016. We’ll have to wait and see what effect they have.

A new bid for K+S?

A major event for Potash Corp. in 2015 was its failed takeover attempt of German potash producer K+S. Even after the bid failed, rumours persisted that Potash Corp. would make another attempt.

But I wouldn’t expect this to happen, at least not in 2016. Falling potash prices have hampered the company’s financials too much, and with a weakened stock price, executing such a large transaction would be too expensive.

Potash Corp. shareholders were never enthusiastic about the K+S bid anyways. So, assuming there are no more bids, these shareholders can breathe a sigh of relief.

Will the dividend survive?

Potash Corp.’s falling stock price has caused its dividend yield to surge–the shares now yield more than 8%. But the dividend probably won’t be cut. Potash prices would have to fall to US$200 per tonne before the dividend comes under extreme pressure, and we are still a long way from those levels.

Yet this is still a very risky stock to hold because it is facing some major challenges. Even if you’re looking for big dividends, your best bet is to look elsewhere.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Benjamin Sinclair has no position in any stocks mentioned.

More on Investing

Canadian Dollars
Stock Market

Where to Invest $5,000 in April 2024

Do you have some extra cash to spare? Here are five companies to invest $5,000 in next month.

Read more »

Plane on runway, aircraft
Stocks for Beginners

Up 53% From its 52-Week Low, Is Cargojet Stock Still a Buy?

Cargojet (TSX:CJT) stock is up a whopping 53%, nearing closer to 52-week highs from 52-week lows, so what's next for…

Read more »

Question marks in a pile
Bank Stocks

Should You Buy Canadian Western Bank for its 4.8% Dividend Yield?

Down 35% from all-time highs, Canadian Western Bank offers a tasty dividend yield of 4.8%. Is the TSX bank stock…

Read more »

Gold bars
Metals and Mining Stocks

Why Alamos Gold Jumped 7% on Wednesday

Alamos (TSX:AGI) stock and Argonaut Gold (TSX:AR) surged after the companies announced a friendly acquisition for $325 million.

Read more »

tsx today
Stock Market

TSX Today: Why Record-Breaking Rally Could Extend on Thursday, March 28

The main TSX index closed above the 22,000 level for the first time yesterday and remains on track to post…

Read more »

Nuclear power station cooling tower
Metals and Mining Stocks

If You’d Invested $1,000 in Cameco Stock 5 Years Ago, This Is How Much You’d Have Now

Cameco (TSX:CCO) stock still looks undervalued, despite a 258% rally. Can the uranium miner deliver more capital gains to shareholders?

Read more »

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

potted green plant grows up in arrow shape
Stocks for Beginners

3 Growth Stocks I’m Buying in April

These three growth stocks are up in the last year, and that is likely to continue on as we keep…

Read more »