Fertilize Your Portfolio and Watch Your Retirement Savings Grow

Nutrien Ltd. (TSX:NTR)(NYSE:NTR) is proving it can deliver on the expected synergies of its Potash Corp. and Agrium merger.

| More on:

When companies merge, one of the most often-touted benefits is synergy. What exactly is meant by synergy? The concept is a simple one to understand. It means that the combined company is more effective and efficient than if they remained separate.

As the saying goes, “two heads are better than one!”

In financial terms, synergy from a merger is the value of the combined entity minus the fair value of the two firms as separate entities. If the difference is positive, then there is synergy.

Did you know? Research has shown that mergers and acquisitions, more often than not, fail to achieve the targeted synergies. The reason? Forecasting is extremely difficult, as there are thousands of variables at play.

Thus, when companies succeed post-merger, it is often reflective of a good plan and management team. A strong management team can be a valuable asset; consider the case for Nutrien Ltd. (TSX:NTR)(NYSE:NTR).

Long-awaited merger

On the first trading day of the year, Nutrien was born as a result of the long-proposed merger between Canada’s two largest fertilizer companies: Potash Corp. and Agrium. Talks between the two companies started in earnest back in 2016.

Targeted synergies

Nutrien is expected to benefit from higher revenues and lower costs by eliminating overlapping operations. Cuts are expected to free up approximately US$500 million in operational costs, half of which are expected in 2018.

The newly combined company has a strong value chain from production through to retail. The company’s size has also provided it with a strong competitive advantage. It has a leading global agricultural retail network and is the largest crop nutrient company in the world.

The end result is expected to be a leaner and more profitable company.

So far, so good

In early May, the company posted its first quarterly results, and it did not disappoint. Although it suffered from a late spring, the company raised full-year earnings-per-share guidance.

In keeping with its intent to return cash to shareholders, the company repurchased 1.6% of shares outstanding in the quarter. It also declared a quarterly dividend of $0.40 per share, and Nutrien now yields a healthy 3.12%.

More importantly, the company has already delivered $150 million in synergies through March 31, 2018. One quarter down, and Nutrien is already on pace to surpass this year’s expected financial synergies.

Since the company went public, there have been seven insider trades on the open market. Six of which were buys. Analysts are also bullish with an average overweight rating and a price target of $74.27. This implies upside of 12% over Friday’s closing price.

Insiders and analysts are putting their faith in management. If the first quarter is any indication, so should you.

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.

Fool contributor Mat Litalien has no position in any of the companies mentioned. Nutrien is a recommendation of Stock Advisor Canada.

More on Dividend Stocks

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

Man with no money. Businessman holding empty wallet
Dividend Stocks

2 Stocks Under $50 New Investors Can Confidently Buy

There are some great stocks under $50 that every investor needs to know about. Here’s a look at two great…

Read more »

think thought consider
Dividend Stocks

Down 10.88%: Is ATD Stock a Good Buy After Earnings?

Alimentation Couche-Tard (TSX:ATD) stock might not be the easy buy-case it once was. Here’s a look at what happened.

Read more »

money cash dividends
Dividend Stocks

TFSA Dividend Stocks: Earn $1,200/Year Tax-Free

Canadian stocks like Fortis are a must-have in your portfolio to earn tax-free yields for decades.

Read more »

sale discount best price
Dividend Stocks

1 Dividend Stock Down 11 Percent to Buy Right Now

Do you want a great dividend stock down 11% that can provide years of growth potential? Here's one heavily discounted…

Read more »

Growth from coins
Dividend Stocks

1 Grade A Dividend Stock Down 11% to Buy and Hold Forever 

If you're looking for the right dividend stock at the right price, you're going to want to consider this insurance…

Read more »

Target. Stand out from the crowd
Dividend Stocks

2 Dividend Stocks to Double Up on Right Now

Are you looking for dividend stocks to buy right now? Here are two top picks!

Read more »

edit Taxes CRA
Dividend Stocks

Tax Time: How to Keep More of Your Money

Nearly everyone hates paying taxes, although Canadians can lessen the financial pain with the right tax strategies.

Read more »