How a Hidden Ammonia Shortage Could Double This Dividend Payout

We need to talk about one dividend grower that’s set to win big from this sudden breakout of tariff peace.

It’s an all-American stock that’s “dirt” cheap now. I’m talking about CF Industries (NYSE:CF), a holding of my Hidden Yields service. CF makes fertilisers and is the world’s largest maker of ammonia, a key ingredient of fertiliser.

How do we know CF is primed to win as China and Uncle Sam take a breather?

We’re quite literally following the money here: CF’s management team is piling in with huge stock buybacks—to the tune of 20% of the company’s “float” over the last three years. And its board just upped the ante with another $2 billion of repurchases.

That’s because management sees exactly what we see here. Let’s dive into three gusting tailwinds for this “back-to-the-land” play, starting (where else?) with tariffs.

US/China “Tariff Truce” Is Step 1 of Our CF Buy Case …

China is one of the biggest buyers of US crops, importing tens of billions of dollars’ worth every year. Higher US-China tariffs hurt farmers’ profits and slowed business at farm suppliers like CF and equipment maker Deere & Co. (NYSE:DE).

So it follows that the drop in tariffs between the two nations is bullish for farm profits—and fertilizer firms like CF. Tariffs have fallen from a stratospheric 125% to 10% on exports to China and from 145% to 30% on exports from China.

As we discussed last week, this sets up a “Goldilocks” tariff zone that’ll protect US suppliers but doesn’t restrict trade altogether. That, in turn, will help profits at American farms and at CF, thanks to the company’s big US footprint.

CF makes ammonia and ammonia-derived products, like granular urea fertilizer, at six plants in America, one in Canada and one in the UK. That American base isn’t only a benefit in terms of tariffs—it also lets CF tap cheaper North American natural gas—a big edge, since gas is 70% of the cost of ammonia production.

Moreover, CF says it can boost output in the US if needed. In fact, as we’ll see below, it’s already taking that step—in a smart, low-risk way.

… Trump Inflation Moves Are Step 2 …

The second? Treasury Secretary Scott Bessent, who, as we’ve discussed recently, plans to tackle inflation with a three-step strategy:

• Tariffs, to slow growth
• Deregulation, to lower costs and offset some of the tariff drag, and …
• More oil production, to cut energy prices.

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You can bet, too, that Trump and Bessent want lower corn and soybean prices, as cheap grocery costs are another administration priority (and are key to slaying inflation).

That puts fertilizer makers—especially domestic fertilizer makers like CF—in a great spot, as their products boost crop yields. That, of course, is key to keeping a lid on food prices. Which brings us to our third (and most underrated) tailwind.

… a Global Ammonia Shortage Is Step 3

Few investors realize this, but ammonia is in short supply and, according to CF, about seven more factories are needed to address the shortfall. CF is stepping into the breach with a new $4-billion plant, called the Blue Point Complex, in Louisiana. This facility also includes state-of-the-art carbon capture tech—a smart move to “future-proof” it.

To cut risk and cost, CF is building the plant through a joint venture with Japanese firms Mitsui & Co. and JERA Co. Inc. That leaves CF to foot about $2.2 billion of the overall construction bill.

Buybacks Come at a Great Time

Meanwhile, CF is already enjoying a rebound in demand for its nitrogen fertilizers and is spending its profits wisely—by buying back its cheap shares, as we touched on earlier.

When I say “cheap,” I’m not kidding. You’d expect a firm with this kind of upside to at least trade for more than the S&P 500. But that’s far from the case here. As I write this, CF trades for around 11.4 times trailing earnings, well below the S&P 500 average of around 23.

CF has returned $5 billion to shareholders in dividends and buybacks since 2022. Add the fresh $2-billion authorization the board recently approved through 2029, and we’re set to see that share count keep dropping.

The Curious Case of CF’s Disappearing Shares

Buybacks like these also drive bigger dividend hikes because they leave fewer shares on which the company has to pay out.

CF’s dividend, which yields 2.3%, hasn’t been hiked since early 2024, though it did see a healthy 25% boost back then. I expect payout growth to resume soon, thanks to the lower share count and the huge amount of room management already has for increases. In the last 12 months, dividends accounted for just 19% of free cash flow.

Finally, CF’s balance sheet supports its buybacks and potential dividend hikes, with just $1.6 billion of long-term debt (net of cash), a fraction of its $13.3 billion of assets.

Disclosure: Brett Owens and Michael Foster are contrarian income investors who look for undervalued stocks/funds across the U.S. markets. Click here to learn how to profit from their strategies in the latest report, "7 Great Dividend Growth Stocks for a Secure Retirement ."

Written By: Contrarian Outlook