1 Lifetime Investment Stock I’d Buy With an Extra $10,000: Agrium Inc.

Here’s why Agrium Inc. (TSX:AGU)(NYSE:AGU) is the best dividend growth lifetime investment for a $10,000 windfall.

The Motley Fool

A dividend growth investor with an extra $10,000 and a long-term outlook has a lot of tickers to choose from.

The ideal company has a distinct competitive advantage in its industry and rewards investors with a combination of increasing dividends and capital appreciation.

Here are the reasons why I think Agrium Inc. (TSX: AGU)(NYSE: AGU) currently fits the criteria well and will continue to provide investors with long-term dividend growth.

1. Integrated business model

Agrium is one of those companies that growth investors can buy and hold forever. The company provides the essential fertilizer nutrients that every farmer on the planet requires to maximize crop yields.

The competitive differentiator that makes Agrium such a compelling investment is its integrated business model. Agrium has both a wholesale unit and a retail unit that contribute to its earnings and free cash flow.

The wholesale unit sells potash, nitrogen, and phosphate to global buyers. These are primarily government-owned organizations that make large purchases to supply the farming organizations in their respective countries. This division has had a tough run in the past year as it has dealt with lower global potash prices and higher natural gas input costs for its nitrogen production.

Transport bottlenecks in Canada have also been an issue for the company. And to top things off, shutdowns have affected production at both its Caresland, Alberta, nitrogen facility and its Vanscoy, Saskatchewan, potash plant.

Here’s the good news for investors: The difficulties at the wholesale division should be ending soon. Potash prices are on the rise and natural gas prices have dropped. Rail shipment bottlenecks have been alleviated and the production issues at Agrium’s facilities should be fixed in the near term.

Despite the difficult times on the wholesale side, Agrium’s shares have held up well. This is due to the strength in its retail division.

Agrium operates North America’s largest network of retail sites that sell farmers the seeds, crop nutrients, and other products they need to get the highest yield possible from their fields.

In its Q2 2014 earnings statement, Agrium reported record results from its retail operation, where earnings before interest, taxes, depreciation, and amortization (EBITDA) were up 28% year over year.

The good results should continue on the retail side of the business. Record crop production in Canada and the U.S. means farmers will have the cash they need to replenish the nutrients in their fields.

Agrium also continues to see increased income and synergy gains from the stores it added when it purchased the Canadian and Australian retail assets of Viterra in 2013.

2. Dividend growth

Agrium pays its dividend in U.S. dollars. The current distribution is $3.00 and yields about 3%. The dividend has been increased significantly over the past three years, and I believe that trend will continue.

The company is near the end of a $2 billion capital program to expand production at Vanscoy. The project will add nearly 40% to Agrium’s potash production capacity.

Free cash flow available to shareholders should increase dramatically in the next two years as capital requirements diminish and production improves at both Vanscoy and the troubled nitrogen operations.

The bottom line

Agrium’s integrated business model sets it apart from the other crop nutrients producers. As the retail division continues to grow, I think the market will begin to appreciate the greater earnings stability and reward the company with a much higher multiple.

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.

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