Dividend investors are always on the lookout for good companies that pay growing dividends and provide an opportunity for capital gains along the way.
Recent market turmoil has reminded investors that it is important to hold stocks from different sectors. Anyone who was overexposed to energy last year understands the risks.
Here’s why I think investors should consider Agrium Inc. (TSX:AGU)(NYSE:AGU) and Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) when starting a new dividend portfolio.
Agrium Inc.
There are about 7.2 billion people on the planet right now and that number could grow to 11 billion by 2050. That’s a lot of extra mouths to feed, especially when the additional food has to be produced using less land.
Agrium helps farmers get the most out of their land, and its operations continue to grow. The company just completed the tie-in of its Vanscoy potash expansion. This is important for dividend investors because the project is switching from development to production at a time when global potash demand is at record highs.
The reduced capital expenditures and higher revenues should mean more free cash flow available for shareholders in the form of higher dividends and share buybacks.
Agrium also has a large retail operation that provides consistent revenue streams that help offset some of the volatility in the wholesale markets.
Agrium pays a dividend of US$3.12 per share that yields about 3%. The dividend has increased significantly in the past four years and investors should see the trend continue.
Bank of Nova Scotia
Canada’s most international bank is going through a major restructuring process. Last fall, the company embarked on a corporate overhaul that included the elimination of 1,500 jobs and a one-time charge of $451 million.
The company expects to see annual expense reductions of $120 million once the changes are completed.
The announcement was a surprise to the markets, but the process had actually begun much earlier. Since taking over the top job in November 2013, CEO Brian Porter has changed a significant part of the senior management team, including the head of marketing, head of capital markets, chief risk officer, head of wealth management, and chief operating officer. In November 2014 the regional heads for Latin America and Mexico were added to the list.
Bank of Nova Scotia is betting big on Latin America, specifically in Mexico, Colombia, Peru, and Chile. The region offers a lot of promise, but the company has struggled to get expenses under control.
Bank of Nova Scotia’s Latin American operations saw Q1 2015 commercial loans grow by 13% and retail loans increase by 11% compared with the same period in 2014. To put the opportunity in perspective, Q1 2015 loan growth in Canada was just 4%.
The entire international banking operation had year-over-year loan growth of 10% and deposits increased by 8%. Despite the strong numbers, overall net income dropped 2% in the division and this has been the challenge. Moving forward, the bottom-line numbers should improve as the restructuring continues.
Bank of Nova Scotia pays a dividend of $2.72 per share that yields about 4%. The dividend has increased eight times in the past five years.
The stock has been out of favour with bank investors, but that is likely to change given the compelling valuation of 11 times forward earnings and the growth potential in international markets.
