The best investment advice I have ever received was to look for supertrends.
Supertrends frequently present ground floor opportunities for investors. They often play out over decades and are usually the result of new technologies or changing demographics. Recognizing and investing in companies that benefit from a supertrend is one of the surest ways to lock in long-term returns.
A classic example is economic development in China or India. Since these countries opened up their economies 20 years ago, over one billion people have been lifted out of poverty. Investors who recognized this trend early on earned huge returns in consumer names like McDonald’s and Yum! Brands or resource firms like BHP Billiton and Rio Tinto.
Looking around, there is no shortage of supertrends shaping our society. Here are three companies leveraged to some of the biggest developments over the next decade.
1. Pembina Pipeline
Pembina Pipeline (TSX: PPL) is a critical component of our modern society, but I doubt you have ever heard of it. The company owns pipelines, terminals, and storage facilities throughout western Canada. This is the infrastructure that ships and stores crude oil, natural gas, diesel, and other energy commodities.
In return for moving and storing these products, the company earns a fee that it passes on to investors. Over the past decade the company has increased its dividend seven times. Today the stock yields 3.9%.
That’s nothing compared to what could happen next. Thanks to the energy boom we’re seeing around the country, the amount of oil and gas being pulled out of the ground today is only a fraction of what’s to come. According to the Canadian Association of Petroleum Producers, western Canadian oil production is expected to double by 2030 thanks to oil sands expansion and shale drilling.
This will require a massive build-out of infrastructure to actually collect, ship, and store all of these hydrocarbons. Pembina Pipeline has a incredible $7 billion in expansion projects — half of its current market capitalization — on the books. That should reward investors for years to come given the steady cash flows, increasing distributions, and backlog of growth projects.
2. Chartwell Retirement Residences
Baby boomers, a group that constitutes a little more than a quarter of North America’s population, started retiring last year. According to estimates by Pew Research, 13,000 boomers turn 65 each day, and that phenomenon won’t end until some time in 2030.
That’s good news for companies that provide elder care. Chartwell Retirement Residences (TSX: CSH.UN), which owns retirement and long-term care facilities across the continent, is poised to profit from aging boomers. Demand will start to outstrip supply over the next few years, and that should provide a boost to occupancy rates and rents.
However, what we’re most interested in is the company’s steady dividend. Since it started making payments in 2004, this company has never missed a distribution. Today it is paying investors a monthly dividend of $0.05 per share. That comes out to a 4.9% yield, but investors can count on that payout to grow significantly in the years to come.
Agrium’s (TSX: AGU)(NYSE: AGU) business is vital to our daily lives. The company produces the fertilizer ingredients — such as nitrogen, phosphate, and potash — needed to feed a hungry planet. Needless to say, without the commodities Agrium produces, we couldn’t feed the planet.
However, that task is getting harder everyday. By 2050, the world’s population is expected to surpass 9 billion people. According to the United Nations, global food production will need to grow 70% over this time to satisfy world production, but without new arable land, farmers will need to step up investments in hybrid seeds, fertilizer, herbicides, and other products to improve crop yields.
Companies that supply agricultural industries are poised to make a fortune. Agrium has a number of growth avenues, including the expansion of its potash mining operations and building out its retail business. The growing demand for agricultural products will provide a nice tailwind for the company over the next decade.