PotashCorp (TSX—POT; NYSE–POT) is a buy for long-term price gains and high dividends that have risen each year since 2010.
Potash says it is “the world’s largest crop nutrient company and plays an integral role in global food production. The company produces the three essential nutrients required to help farmers grow healthier, more abundant crops. Potash is the largest producer, by capacity, of potash and one of the largest producers of nitrogen and phosphate. While agriculture is the primary market, the company also produces products for animal nutrition and industrial uses.”
We include PotashCorp among our best buys for income. That’s because its dividend of C$1.60 a share offers an attractive yield of nearly four per cent.
It’s important to hold some resources stocks for proper diversification. The trouble is that most commodity prices have fallen. Crude oil, the latest casualty, joins a growing list of other commodity casualties, such as gold. In fact, that’s one reason why the Canadian stock market has done worse than other markets, such as the U.S.
Prices for fertilizers such as potash, nitrogen and phosphate have also fallen. Particularly after the Belo-Russian cartel fell apart. Russian producer Uralkali decided to go it alone and disrupted markets.
In PotashCorp’s case, however, its earnings exceed the dividends. As a result, it can afford to pay the dividends. We expect PotashCorp to at least maintain its dividend. Especially since its earnings are expected to rebound to C$2.41 a share in 2015.
The long-term outlook for fertilizers and PotashCorp is positive. As Asians become more prosperous, they’re eating more meals. With most of humanity living in Asia, this adds enormously to the demand for crops. In addition, Asians are eating more meat—something only the rich could afford for millennia. This further requires crops to feed all those animals.
Keep in mind, too, that the world’s population continues to grow. We’ve seen reports that the global population grows by about 70 million a year. So the consumption of crops will climb for the foreseeable future.
The short-term outlook also improved recently. Uralkali had to suspend operations at one of its major mines. That’s because it began to fill with water and a large sinkhole appeared. Now it appears that some of Uralkali’s former production has resumed. But its lost production helped PotashCorp and other producers.
PotashCorp remains a buy for attractive dividends while you wait for the shares to go up as the need for fertilizers increases its profits.
The Investment Reporter, MPL Communications Inc.
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