Canadian investors are searching for ways to diversify the geographic exposure of their portfolios, but buying foreign stocks can come with unwanted risks.
Fortunately, there are a number of top-quality Canadian companies that benefit from global growth or have operations in overseas markets.
Nutrien was formed through the merger of Potash Corp. and Agrium Inc. at the beginning of 2018. The deal created a giant in the global fertilizer sector, combining the wholesale businesses of both companies, as well as Agrium’s retail operations.
Crop nutrients have been in a multi-year slump, but the situation appears to be improving. Global potash shipments are expected to hit record levels in 2018 and spot prices are drifting higher. The company’s retail business, which sells seed and crop protection products to farmers globally, provides a nice hedge against volatility in the wholesale group.
Nutrien declared a US$0.40 per share quarterly dividend for its first payout. Management is targeting distributions that represent 40-60% of free cash flow after sustaining capital. At the time of writing, the stock provides a yield of about 3.5%.
Prior to the merger, Agrium and Potash Corp. wrapped up multi-year capital programs, so Nutrien has the facilities in place to compete, and can boost production as demand rises in the coming years. This means that investors shouldn’t have to worry about major development projects destabilizing the balance sheet or draining cash flow.
Population growth is expected to drive rising food demand in the coming decades, and farmers are being forced to produce more crops with less land as urban sprawl continues. One way to boost crop yield is by using more fertilizer, so demand growth should be steady.
Sun Life operates insurance, asset management, and wealth management businesses around the globe. The largest part of the company’s revenue comes from Canada and the United States, but the future should see Asia contribute a larger piece of the earnings pie.
Sun Life has strong partnerships or subsidiaries in a number of emerging markets, including India, China, the Philippines, Vietnam, Thailand, Indonesia, and Malaysia. As the middle class grows, demand for insurance and investment products should increase, and Sun Life is well positioned to benefit.
The company has rebounded after a tough run through the financial crisis, and investors are now seeing the return of steady dividend growth. Sun Life currently offers a 3.5% yield.
Interest rates are moving higher, which should be good news for Sun Life, as rising rates tend to be positive for insurance companies. Higher rates boost the return that can be earned on funds that the company must set aside for potential claims. Interest rates also tend to increase when the economy is showing strength, which normally bodes well for the wealth management side of the business.
Is one a better bet?
Nutrien and Sun Life should be solid buy-and-hold picks for investors who want exposure to global growth through top-quality Canadian companies. At this point, I would probably split a new investment between the two stocks.
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Fool contributor Andrew Walker owns shares of Nutrien. Nutrien is a recommendation of Stock Advisor Canada.