Despite strong gains and a high dividend yield, Rogers Sugar seeks to offset the many risks in its industry with the purchase of a maple syrup firm.
A member of Pat McKeough’s Inner Circle recently had a questions about a “good, albeit boring” dividend stock. This company’s products, labelled as “Lantic” in central and eastern Canada, and “Rogers” in the west, include a variety of sugars and syrups. The company posted strong revenue and earnings gains in the most recent quarter and its dividend yields a high 5.7%.
Still, Pat underlines the many hidden risks in the industry as a whole, including high energy costs, weather conditions and labour settlements. One positive for Rogers Sugar could be the acquisition of a maple syrup bottler than should offset some of the company’s risk.
Q: Pat, your thoughts, please, on Rogers Sugar (RSI-T), as a good, albeit boring, dividend yield stock. Thanks.
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A: ROGERS SUGAR INC. (symbol RSI on Toronto; www.lanticrogers.com) owns 100% of Lantic Inc., which makes it the leading supplier of refined sugar in Canada.
Lantic operates cane sugar refineries in Quebec (including Montreal) and Vancouver. It also manages the only Canadian sugar-beet processing facility, in Taber, Alberta. Lantic’s sugar products are marketed under the “Lantic” trademark in central and eastern Canada, and the “Rogers” trademark in Western Canada. They include granulated, icing, cube, yellow and brown sugars, liquid sugars, and specialty syrups.
In the three months ended April 2, 2022, revenue rose 17.3%, to $253.34 million from $215.93 million a year earlier. That’s due to higher sugar volumes and selling prices. Excluding one-time items, earnings per share gained 28.6%, to $0.09 from $0.07.
Growth stocks: $160 million maple syrup acquisition helps offset risk
Competition in the sugar industry remains high as sugar demand levels off and small competitors look to make greater inroads.
The sugar business also involves lots of extra, hidden risks that expand volatility. Rogers Sugar is vulnerable to high energy costs, weather conditions affecting sugar beet production and prices, and labour settlements with workers. World sugar markets are subject to changing government regulation and trade policies.
When most of the above conditions are favourable, Rogers Sugar can show strong profits. But when they are unfavourable, profits shrink.
To offset the above risks and provide future growth, the company bought L.B. Maple Treat Corporation in August 2017 for $160.2 million. That business is one of the world’s largest branded and private-label maple syrup bottling and distribution companies.
L.B. Maple is a dominant player in the faster-growing and more fragmented maple syrup category. That provides the company with the opportunity to make smaller acquisitions (something that is uncommon in its sugar business). Moreover, the supply-managed nature of the maple syrup business help make Rogers Sugar’s profits more stable.
The company’s shares have a high yield of 5.7%.
Inner Circle recommendation: Rogers Sugar is okay to hold, but only for aggressive investors.
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