Topic: Mining Stocks

Two dividend increases only add to combined Nutrien Ltd’s appeal

High commodity prices and this company’s better-than-expected cost cutting have expanded its revenue and earnings. At the same time, this industry giant—the result of a massive 2018 merger—continues to look for acquisitions to further spur earnings.

The company has raised its dividend twice already since that merger and now offers a 3.3% yield.

The stock trades at just 17.2 times the company’s 2019 earnings forecast.

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NUTRIEN LTD. (Toronto symbol NTR; took its current form on January 1, 2018, through the merger of Agrium (old symbol AGU) and rival fertilizer producer Potash Corp. of Saskatchewan (old symbol POT). In addition to selling bulk fertilizers, the new firm sells agricultural supplies to farmers through over 1,700 retail outlets in seven countries.

The combined company earned $41 million, or $0.07 a share, in the three months ended March 31, 2019 (all amounts except share price and market cap in U.S. dollars). A year earlier, Nutrien

lost $1 million, or nil per share. If you disregard costs related to the merger and other unusual items, the company earned $0.20 a share in the latest quarter.

Revenue rose 0.7%, to $3.69 billion from $3.67 billion a year earlier. That gain was due to increased potash prices and volumes. They offset lower sales for Nutrien’s retail outlets as wet conditions in North America and dryness in Australia delayed the planting season.

Nutrien also uses acquisitions to fuel its growth. In the latest quarter, it purchased 42 retail locations as well as the firm Actagro. It makes specialty soil and plant health products at facilities in Arkansas and California. In all, these purchases cost $487 million.

The company’s strong balance sheet will let it continue to keep expanding. As of March 31, 2019, its long-term debt was $7.9 billion, or a manageable 25% of its market cap. Nutrien also held cash of $373 million.

Mining Stocks: Company has cute $621 million in expenses already

Savings from eliminating overlapping operations between Agrium and Potash Corp. continue to free up cash for new investments. So far, the company has cut $621 million from its annual expenses. That’s 24.2% more than its initial target of $500 million.

Nutrien has also raised its dividend twice since the merger. The new annual rate of $1.80 yields 3.3%.

Meanwhile the company just ended its North African mining operations.

Nutrien used to purchase large amounts of phosphate rock from an entity controlled by the Moroccan government. Western Sahara Resource Watch estimates that Agrium and Potash Corp. (which merged to create Nutrien) bought 4.5 million tonnes of phosphate rock between 2014 and 2017. It carries an estimated value of $526 million.

In 2018, before the merger with Potash Corp. was completed, Agrium agreed to stop its purchases from the Moroccan supplier once its current contract ended. More recently, Nutrien announced that it ceased all purchases at the end of 2018.

The company still expects to earn between $2.80 and $3.20 a share for all of 2019. The stock trades at a reasonable 17.2 times the midpoint of that range.

Recommendation in The Successful Investor: Nutrien is a buy.


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