The recent leg of the bull market looks like it might be running out of steam, and yield seekers are wondering where they should invest new money.
Here’s why I think long-term dividend investors with a conservative outlook should consider Agrium Inc. (TSX:AGU)(NYSE:AGU) and Toronto-Dominion Bank (TSX:TD)(NYSE:TD).
Agrium Inc.
The case for Agrium is built around some sobering population facts. In 2015, estimates put the global population somewhere north of seven billion. By 2050 that number could hit 11 billion.
As more mouths make their appearances on this wonderful planet, the amount of land that is available to grow food to feed them is rapidly disappearing. Feeding more humans is difficult enough, but people also want to eat more meat, and it takes a lot of crops to feed the animals before they are big enough to feed the people.
Fortunately, Agrium produces the phosphate, potash, and nitrogen needed to improve crop yields. In fact, without these key fertilizer products, crop yields would be half as high. It doesn’t take a rocket scientist to see the potential demand growth, and Agrium’s investors are looking at some great cash flow gains in the coming years.
Dividends are paid out of free cash flow that is left over after the company covers its capital expenditures. Agrium has just completed a multi-year capital expansion program at its Vanscoy potash facility and is also expanding its nitrogen capacity.
As these projects shift from development to production, cash flow available for shareholders will jump significantly. The company knows this and recently increased the target payout ratio. It also bumped the dividend by 12%.
Agrium pays a dividend of US$3.50 per share that yields about 3.3%.
Toronto-Dominion Bank
TD just reported solid operating results, but the market is a bit concerned because the company took a $228 million restructuring charge. Market conditions are more challenging now than they were in the past few years, and some analysts are saying investors should avoid the banks.
TD stands out as a solid bet because it derives a significant part of its revenue from the U.S., where the economy continues to recover. In fact, TD has more than 1,300 branches located in the U.S. and is now listed as one of the top 10 U.S. banks. The U.S. earnings are also helpful in the current environment because the U.S. dollar is strengthening against the loonie.
The company has a conservative approach to the way it runs its business and is less exposed than some of its peers to the more volatile revenue segments, like capital markets. In Canada, TD operates what is widely acknowledged as the country’s best retail operation and the big green machine will continue to pump out profits even if the Canadian economy goes sour for a while.
The restructuring should be seen as a positive sign because it means management is making the changes needed to adjust to a challenging environment.
The bank currently pays a dividend of $2.04 per share that yields about 3.8%. As a long-term dividend-growth pick, Toronto-Dominion Bank is tough to beat, and investors should be comfortable owning the stock in the current environment.
