Update: Terra Nitrogen Post
Yesterday, I wrote a post on how the dividend payout of Terra Nitrogen Co. LP (TNH: 92.00 +2.51 +2.80%) will change going forward. To recap, the partnership agreement between Terra Industries (TRA: 46.33 -0.57 -1.22%) and Terra Nitrogen gives Terra Industries, as the owner of the general partner, increasing percentages of TNH’s distributable cash when said cash exceeds 71.5¢ per share, maxing out at 50% of distributable cash when the amount per share exceed $1.045.
I did my rough calculations for the recent distribution, giving 50% of the entire distribution to the GP, thus reducing the dividend from the paid $4.20 to a projected $2.10. I received a couple of comments here and at the Seeking Alpha version of the article “correcting” my calculation. Jack Sturm stated the new dividend would be $3.07 and an unnamed commentor at Seeking Alpha believes the dividend would be $2.60. After taking another look at my hasty calculation it is apparent the tiers need to be honored, otherwise, as an example, if the distributable cash was $1.10 per share and the GP took 50%, the dividend would be 55¢, below the “minimum” 60.5¢.
Let me give a little detail about the tiered cash split structure. If distributable cash is up to 71.5¢ per share the common shareholders will get 99% of the money. From 71.5¢ to 82.5¢ the common shareholders get 86% of the cash, 82.5¢ to $1.045: 76% and above $1.045 the distributable cash is basically split 50/50 between the common shareholders and the general partner. Here is a copy of the information I extracted from the 2007 10-K. partnership-distributions
Applying the tier percentages to last quarters $4.20 dividend leaves the common shareholders with $2.57 per share. I stand corrected! However, the bottom line is that unsuspecting, uninformed shareholders are going to get a nasty surprise when the next dividend is declared.
If the dividend change conversation is confusing read my previous article then come back to this one.
Note: I currently do not have a position in TNH or TRA.
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