Agrium Inc. (TSX:AGU)(NYSE:AGU) and Bank of Montreal (TSX:BMO)(NYSE:BMO) have provided investors with fantastic returns during the past few years. Let’s take a look at both companies to see if one offers a better pick for your dividend portfolio.
Agrium Inc.
Agrium just hit an all-time high of $125 per share. The stock has been on a good run since the financial crisis and the momentum should continue.
Agrium recently completed the tie-in of a major expansion at its Vanscoy potash mine. The timing couldn’t be better. Global potash prices are expected increase in 2015 and global demand for the crop nutrient is hitting record highs.
At the same time, global supplies are coming under pressure. Russia-based Uralkali, the world’s largest potash producer, has shut down one of its largest projects due to a major sinkhole that is allowing water to enter the mine. The sinkhole has doubled in size since it was first discovered and the mine is at risk of being completely flooded. The facility was responsible for 20% of Uralkali’s production.
Recent weakness in the price of natural gas is going to mean huge margin gains for Agrium’s nitrogen business. Natural gas is the major input cost for the production of nitrogen and current prices for the fuel are approximately 25% lower than they were last year.
Agrium also has a very strong retail operation.
The company pays a dividend of US$3.12 per share that yields about 2.9%. The dividend has increased significantly in the past three years and investors should see that trend continue.
Bank of Montreal
Canada’s oldest bank has boosted the dividend payout five times in the past 36 months and shareholders have been consistently receiving a piece of the profits for more than 150 years.
There are a lot of concerns right now about the risks facing the Canadian banks as the rout in oil prices puts economic growth at risk. If the economy falters, analysts worry that Canadians will begin to default on debt payments and a possible housing crash could be in the works.
Bank of Montreal has invested heavily in its U.S. operations and this diversity should help offset weakness in Canada. The company should also see some benefits from the strong U.S. dollar. The drop in oil and natural gas prices means that Canadian and U.S. households will spend much less money on gasoline and home heating expenses. The savings are substantial for an average family, and the money could be used to pay down the mortgage, purchase a car, increase credit card spending, or purchase retirement investment products. All of these should help Bank of Montreal in the coming year.
Bank of Montreal pays a dividend of $3.20 per share that yields about 4%.
Which should you buy?
Agrium is on the verge of a free cash flow windfall and investors should see huge benefits in the form of increased distributions and large share buybacks. The company’s move to a new record high is also a positive sign for the stock.
Headwinds facing the Canadian economy are cause for concern at all the banks. At this point in time, Agrium is probably a better bet.
