You wanna know the secret to growing your dividends like weeds? Bet on the agricultural stocks providing the “stuff” that makes things grow.
Currently, there are around seven billion hungry people inhabiting our planet. That’s a lot by any standard. But that number is forecast to rise to more than 9 billion by 2040.
With populations rising across the globe in in both developed and emerging markets, producing enough food to feed the world’s citizens is becoming a huge issue that has led to an unprecedented opportunity for investors.
That opportunity lies within the potash, nitrogen and phosphate miners and producers.
And unlike the much of the commodities space, they’ve spent the last few quarters racking up profits and rising higher. Not to mention that these agriculture stocks pays some pretty high and growing dividend yields.
For investors, fertilizer stocks could one of the best plays to get much-needed dividend yields.
Fertilizer Stocks to Buy: Potash Corp. of Saskatchewan, Inc. (POT)
Dividend Yield: 4.3%
Canada really is blessed when it comes to natural resources. From gold to oil, our neighbors to the north really do have it all. And you can add potash to that list.
Potash Corp. of Saskatchewan, Inc. (NYSE:POT) is the kingpin.
The company owns and operates five potash mines in Saskatchewan and one potash mine in New Brunswick, totaling a whopping 834,000 acres. Those reserves– which have been dubbed strategic by the Canadian government — have helped POT become an earnings machine over the course of its history.
Being part of one of the largest fertilizer cartels, Canpotex, hasn’t hurt either. Canpotex basically has the power to set pricing on the world’s stage.
In the latest quarter, POT saw demand for potash surge 42% to reach a record 2.5 million tons during the fourth quarter. That leap helped POT see an 88% jump in earnings per share.
Rising potash sales has also helped on the cash flow front as well. Potash of Saskatchewan has consistently seen cash flows grow like weeds. The latest was a 9% bump upwards. That continued growth in cash flows have also translated in dividend gains for investors. POT recently raised its payout by 9% and now sports a dividend yield of 4.3%.
Fertilizer Stocks to Buy: Agrium Inc. (AGU)
Dividend Yield: 2.7%
If Canpotex is helping POT churn out hefty profits, then it stands to reason that its other members could be great dividend yield plays as well. And Agrium Inc. (NYSE:AGU) is just killing it.
Along with potash, AGU is also a huge producer of nitrogen and phosphate. In fact, Agrium produces around 10.8 million tons of the big three fertilizers. However, AGU isn’t just a crop nutrient play. The firm also markets everything from pesticides to GMO seeds. That makes it a total agricultural play, allowing its customers to plant, protect and nourish their crops from seed to final fruit/grain.
And, as a major Ag firm, Agrium continues to see rising demand for its products both in the United States and in key demand drivers like China and India.
This, of course, has been a major boon for AGU’s investors. Over the last 10 years, AGU stock has returned more than 600%. Rising demand has also been great for dividends at Agrium at well. Management recently upped its payout ratio to 40%-50% of free cash flow — up from its prior target of 25% to 35%. That boost should raise AGU’s current dividend yield of 2.7%.
Meanwhile, AGU shares are still cheap with a forward P/E of 13.
Fertilizer Stocks to Buy: CF Industries Holdings, Inc. (CF)
Dividend Yield: 1.9%
While lower natural gas prices have been hurting energy producers, end users of the fuel have been sitting pretty. Case in point, CF Industries Holdings, Inc. (NYSE:CF).
CF is a producer of nitrogen and urea ammonium nitrate fertilizers. And natural gas is major feedstock when it come creating these sorts of crop nutrients. As such, CF typically sees its earnings rise and fall along with natural gas prices. In its latest earnings — reported during a period of high natural gas prices — CF saw a whopping 27% decline in profits.
However, investors who are in for the longer haul shouldn’t be concerned with just one quarter’s worth of results. Especially if they’re looking for a hefty dividend yield in the future.
Aside from the fact that natural gas prices have fallen to around $2.30, CF has benefited from higher nitrogen demand from a healthy U.S. corn forecast. Unlike potassium and phosphate, farmers must reapply nitrogen every year. Lower natural gas prices, along with rising corn demand, puts CF pretty much in the driver seat when it comes future earnings and dividend potential.
Given the bullish tailwinds propelling CF Industries — as well as cash flows gained from its MLP subsidiary Terra Nitrogen Company, L.P. (NYSE:TNH) — analysts estimate that the firm will be able to double its dividend in less than three years. Currently, Considering CF already has a dividend yield of 1.9%, you should probably get in before everyone else.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.