Long-time readers know we’re constantly evaluating stock picks. That means moving out of picks with limited growth prospects like this one.
Lower prices led to a 10.1% revenue drop in the quarter ended December 31, 2020, and market conditions are likely to be challenging for the foreseeable future.
CHEMTRADE LOGISTICS INCOME FUND (Toronto symbol CHE.UN; www.chemtradelogistics.com) is one of the largest removal-service providers for resource firms that create acids and sulphur as byproducts.
Chemtrade generates earnings, and investor returns, by converting (and selling) those substances into useful chemicals such as sulphuric acid. Many of its removal contracts are with oil refineries and base-metal processors.
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The company also makes and sells a variety of inorganic coagulants used in water treatment, including aluminum sulphate, aluminum chlorohydrate, polyaluminum chloride, and ferric sulphate. Further, it sells specialty chemicals, including sodium nitrite, potassium chloride, P2S5, and aluminum hydroxide vaccine adjuvants. All these products are marketed primarily to North American customers, with water treatment chemicals being sold to both municipal and industrial customers. Chemtrade’s specialty chemicals go to industrial customers in a variety of industries globally.
Dividend Stocks: Lower prices hurt results and distributions
In the three months ended December 31, 2020, revenue fell 10.1%, to $319.4 million from $355.2 million a year earlier. That was mostly due to lower prices for caustic soda and hydrochloric acid, which offset higher sales of water treatment products. Meantime, mostly due to the lower revenue, Chemtrade’s cash flow declined sharply, to $10.9 million, or $0.12 per unit, from $33.3 million, or $0.31.
In March 2020, the trust cut its monthly distributions by 50%, to $0.05 from $0.10. The units have a still-high yield of 8.5%.
Chemtrade faces market conditions that will weigh on it for the foreseeable future. While it has sufficient liquidity to manage today’s challenging conditions, its long-term debt is now $1.2 billion, or a very high 1.7 times its $725.2 million market cap. That adds a lot of risk.
We still like Chemtrade’s long-term outlook—it offers investors diversified exposure to North American industrial chemicals—but we think there are better stocks for your new buying.
Interesting but I don’t recall seeing any sell advice on chemtrade while it was still above 10. Putting a sell in it now just adds insult to injury.
Your analysis of stocks in the moderate to higher risk segment has proven to be quite weak over the 10 or so years I have been a subscriber.
Thanks for your comment. The free Daily headline aimed to draw attention to our coverage of Chemtrade—and our sell recommendation. Please note, though, that for Power Growth Investor subscribers, we updated our advice on Chemtrade—with its sell recommendation—in our November 27, 2020 Power Growth Investor Hotline.
I find your headline alarmist as Chemtrade cut it’s dividend a year ago and so has no bearing on it today. at the time I doubled down on it so I’m still getting the same amount. You seem to like it too for the long run and when conditions improve they may increase the dividend such as Artis is now doing.
Thanks for your comment. The free Daily headline aimed to draw attention to our coverage of Chemtrade—and our sell recommendation. Please note, though, that for Power Growth Investor subscribers, we updated our advice on Chemtrade—with its sell recommendation—in our November 27, 2020 Power Growth Investor Hotline.
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Interesting but I don’t recall seeing any sell advice on chemtrade while it was still above 10. Putting a sell in it now just adds insult to injury.
Your analysis of stocks in the moderate to higher risk segment has proven to be quite weak over the 10 or so years I have been a subscriber.
Thanks for your comment. The free Daily headline aimed to draw attention to our coverage of Chemtrade—and our sell recommendation. Please note, though, that for Power Growth Investor subscribers, we updated our advice on Chemtrade—with its sell recommendation—in our November 27, 2020 Power Growth Investor Hotline.
I find your headline alarmist as Chemtrade cut it’s dividend a year ago and so has no bearing on it today. at the time I doubled down on it so I’m still getting the same amount. You seem to like it too for the long run and when conditions improve they may increase the dividend such as Artis is now doing.
Thanks for your comment. The free Daily headline aimed to draw attention to our coverage of Chemtrade—and our sell recommendation. Please note, though, that for Power Growth Investor subscribers, we updated our advice on Chemtrade—with its sell recommendation—in our November 27, 2020 Power Growth Investor Hotline.