Are Falling Commodity Prices a Warning Sign of More Bad News to Come?

Commodity prices have begun to slide in the wake of a slowdown in trade talks between the U.S. and China. Find out why it may be time to explore other options, including Nutrien Ltd (TSX:NTR)(NYSE:NTR) and another stock that’s currently yielding a 13% dividend.

cup of cappuccino with a sad face

Image source: Getty Images

Commodity prices are broadly down over the past month, and one has to wonder if it all isn’t spelling trouble for certain leading Canadian metals and mining stocks.

Negotiations between China and the United States hit another bump in the road with the U.S. announcing on Friday plans for additional tariffs on Chinese imports.

But while the absolute dollar amount the new tariffs sounds onerous, they’re actually still relatively minor in when you consider the gross domestic product of both nations’ respective economies.

Even still, China is by far the major player in the global market for commodity products, and so it shouldn’t be all that surprising that shares in companies like Teck Resources (TSX:TECK.B)(NYSE:TECK) and First Quantum Minerals (TSX:FM) were down sharply this week.

Even though both are coming off what were, for the most part, fairly strong first-quarter financial performances, Teck, with its exposure to steel markets, and First Quantum, largely a pure copper play (Teck has significant copper operations also, mind you), should continue to feel the pinch if worries about the short-term future of the Chinese market continue to take centre stage.

Meanwhile, one of Canada’s other pre-eminent mining companies, Nutrien (TSX:NTR)(NYSE:NTR), fared relatively better last week, up over 3% on Friday, despite missing analyst estimates for earnings on Thursday after the market close.

Given weakness in the shares of metals stocks this week, it only makes sense that investors may want to be making a rotation out of stocks with strong exposures to China in favour of the shares of companies like Nutrien, which still has exposure to commodity prices broadly but is much more dependant on the state of agricultural markets and less so that of China and other EM nations.

Nutrien declared its $0.43 dividend on Friday, payable to shareholders of record on June 28 with NTR stock going ex-dividend on June 27.

Yet those who are looking to get out of the way of commodity markets altogether in light of last week’s events may find solace in an idea like the Chemtrade Logistics (TSX:CHE.UN).

Chemtrade pays its shareholders a regular $0.10 monthly distribution, which, with the CHE.UN shares trading at just $9.16 as of Friday’s close, represents a very, very attractive 13.1% annual dividend yield, which is by far and away one of the highest yields you’ll find anywhere on the TSX Index these days.

Even though it reported a $29.3 million net loss during the first quarter, management reported higher selling prices across the board for its sulphur products, performance chemicals, and water solutions segments — a development it had been foreshadowing in previous earnings releases and something that should certainly be taken as an encouraging sign as we head into the back half of the year.

Bottom line

Historically, commodity prices have been notoriously volatile to begin with, which only serves to add fuel to fire and means the latest bout of uncertainty regarding trade talks between China and the U.S. could threaten to wreak serious havoc on some of the sectors more highly leveraged names.

At this stage in the game, I’d personally be making a flight to quality within the sector and would be on the lookout for shares of companies operating businesses with less exposure to foreign markets, particularly China.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Jason Phillips has no position in any of the stocks mentioned. Nutrien is a recommendation of Stock Advisor Canada. Chemtrade is a recommendation of Dividend Investor Canada.

More on Dividend Stocks

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

edit Woman in skates works on laptop
Dividend Stocks

3 No-Brainer Stocks to Buy Under $30

These three stocks all offer a huge deal for investors looking for dividends, as well as growth that will last.

Read more »

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »