Buy this high dividend paying chemical stock

We’ve added Agrium Inc. to The Investment Reporter’s  list of Key stocks. (Key stocks in The Investment Reporter’s monthly Investment Planning Guide are the main building blocks of your portfolio.) Agrium’s earnings per share are growing quickly and its rising dividends put it on our list of top Canadian dividend stocks.

We’ve added Calgary-based Agrium Inc. (TSX─AGU; NYSE─AGU) to The Investment Reporter’s list of Key stocks. The shares are a buy for long-term gains plus high and rising dividends.

Agrium operates two businesses. Its retail business supplies agricultural products and services through 1,375 outlets in the Americas, Australia and Egypt. The company has major production facilities in North America and Argentina. It sells up to nine million tonnes of agricultural nutrients—nitrogen, phosphate and potash—around the world. Agrium also sells specialty and controlled-release nutrients.

Agrium’s earnings are growing quickly. In 2015, it’s expected to earn $7.07 a share (all figures in U.S. dollars unless preceded by a C). This would represent earnings per share growth of 19.4 per cent, from $5.92 a share last year. Based on this year’s earnings estimate, the shares trade at a fairly-high forward price-to-earnings, or P/E, ratio of 19.3 times.

Agrium’s earnings and dividends are growing quickly

Next year, Agrium’s earnings are expected to jump by 26 per cent, to $8.91 a share. Based on this estimate, the shares trade at a better P/E ratio of 15.3 times. This looks like a bargain, given fast expected growth in the company’s earnings per share.

Agrium’s rising earnings per share partly reflect the repurchase of its shares. In 2007, 2010 and 2011, it had peaks of 158 million shares outstanding. The company has bought back shares ever since. It’s expected to end 2015 with a share count of 142 million.

Agrium paid dividends of 11 cents a share for years. Since 2010, however, it has raised its dividend sharply every year. That’s partly because management faced pressure from an American activist investor. Today the company pays a dividend of $3.50 a year. That works out to C$4.63 a share. As a result, Agrium yields an attractive 3.4 per cent. We expect it to keep raising its dividends in the years ahead.

Agrium’s long-term outlook is favorable. After all, the world needs more crops. Growing middle classes in populous emerging markets are eating more meals a day. Also, they’re eating more meat. The world’s population keeps rising by 75 million a year. Even some poor countries can afford to eat. That’s thanks to remittances of hundreds of billions of dollars sent ‘home’ by overseas workers. This greatly exceeds foreign aid, according to The Economist. Then, too, crops can provide renewable fuel (such as ethanol).

Agrium Inc. is a buy for long-term share price gains as well as high and rising dividends.

 

The Investment Reporter, MPL Communications Inc.
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