Terra Nitrogen (NYSE: TNH) is one of the most generous dividend payers on the market. Tomorrow, it will become even more generous.
The mid-cap fertilizer producer is increasing its quarterly dividend to a whopping $4.68 per share on Thursday – or $18.72 per share annually. With a current share price of $227, that’s a hefty 8.3% yield. Only 14 companies larger than Terra Nitrogen offer a higher yield.
Terra Nitrogen has long been a generous dividend payer, returning almost its entire cash flow in 2012 to shareholders in the form of a dividend. That practice may have enticed a few more investors to buy the stock, but it also led to a volatile dividend.
Terra Nitrogen has alternated between increasing and slashing its dividend nine times in the past three years alone. In November 2010, for example, TNH slashed its dividend from $2.36 a share to $1.40 per share. By May, it had suddenly tripled to an all-time high of $4.82 per share.
That’s not dividend growth. That’s dividend uncertainty. And the uncertainty has sent the stock on a wild ride of late – from a high of $292 a share last April to a low of $175 a share last May. The stock has risen 13% since then, but is up less than 3% in 2013.
For more reliable dividend growth, income investors would be wise to turn to two other companies increasing their dividends this week: Chevron (NYSE: CVX) and Costco (NASDAQ: COST). Both companies are upping their dividends today – the latest in a steady string of increases.
Costco is bumping its dividend to $0.31 per share from $0.275 per share, a 13% increase. It’s at least the 10th straight May that the company has upped its dividend.
Chevron has been nearly as reliable a dividend grower. The oil giant has increased its dividend every year since 2005. Chevron’s latest dividend hike, to $1.00 per share from $0.90 a share, brings its yield to 3.3%.
It’s no 8.3% yield. But at least Chevron – like Costco – offers reliable annual dividend growth, and avoids the seesaw dividend approach that has made Terra Nitrogen so volatile of late.