Over the past five years Agrium Inc. (TSX:AGU)(NYSE:AGU) has been one of the fastest dividend growers in the market. In 2010 the company paid out an $0.11 dividend resulting in a paltry 0.1% yield. By growing that payout by an average 114% a year for the past five years, the dividend has reached a respectable $3.03 a share, a yield of 3.2%.

What’s made the company so successful at raising its dividend, and will earnings growth be high enough to support even more dividend boosts?

A diversified revenue stream

Agrium is the largest retailer and distributor of crop inputs in the world. While competitors are primarily focused on one or two inputs such as potash or phosphate, Agrium is much more diversified. No one input comprises a majority of sales, with the company deriving revenues from nitrogen, potash, crop protection chemicals, phosphate, seeds, and farmer services.

This strategy has allowed the company to maintain stable profits even during turbulent times. When potash prices plummeted in 2012, competitor Potash Corp./Saskatchewan Inc. saw its earnings drop by 32%. Agrium, meanwhile, was able to boost profits by 10%.

In a world where commodity prices tend to show periods of extreme volatility, Agrium’s reliable business model is a boon for income investors.

Plenty of room to grow

The agricultural retail market is highly fragmented, with 30% of the entire market being run by small independent operators. With a third of the entire market, Agrium has plenty of acquisition opportunities left to grow its business.

By combining these small mom-and-pop operations with its vast distribution network, Agrium can immediately lower costs and seamlessly add new regions to its portfolio. With years of history showing a willingness to make numerous and sizeable acquisitions, Agrium should remain an active participant.

A focus on shareholder value

Agrium expects to generate $7.3 billion in free cash flow over the next five years. This should allow the company to continue raising its dividend and to invest in its growth strategy. Management has outlined two main ways to return cash to shareholders:

  1. Increasing dividend payments, aiming for a 40-50% payout ratio (based on free cash flow, not earnings). For 2015 management has already agreed to increase its dividend by 12%.
  2. Share buybacks are also a main method of rewarding shareholders. Since 2011 the company has managed to buy back 10% of all shares. This should remain a primary tool to create shareholder value.

Bet with the smart money

Activist investor ValueAct Capital Management LP owns roughly 6% of the company. With $17 billion in capital, ValueAct has had major success with companies such as Microsoft Corp. and Valeant Pharmaceuticals Intl Inc.

With a track record of finding attractive investments, investors could do a lot worse than following their lead. With a long-term plan to continue growing free cash flow, distributing dividends, and buying back stock, Agrium looks like a valuable investment.

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Fool contributor Ryan Vanzo has no position in any stocks mentioned. The Motley Fool owns shares of Microsoft. Agrium Inc. is a recommendation of Stock Advisor Canada.