RRSP Investors: This 4.2% Dividend Stock Hasn’t Missed a Payment in 15 Years

Ag Growth International Inc (TSX:AFN) looks like a low-volatility stock with above-average income potential. RRSP investors need to take a look.

Ag Growth International (TSX: AFN) is Canada’s leading manufacturer of agricultural equipment. In a world of ever-rising populations, Ag Growth looks to be in the right business.

While the need to increase food production should continue to provide long-term growth opportunities, the company has also been diligent about returning cash to shareholders. Since 2004, Ag Growth hasn’t missed a dividend payment. Today, its dividend yield stands at 4.2%.

Looking ahead, the company should have plenty of opportunities to not only sustain this income stream but grow it over time.

Here’s why Ag Growth is the ideal income stock for any RRSP investor looking for low-volatility stocks that provide reliable income.

Agriculture is infrastructure intensive

To support the world’s agriculture companies, there needs to be a massive amount of infrastructure. That includes facilities to store, blend, mix, convey, condition, process, and protect billions of tonnes of agriculture inputs and crops every day.

This is where Ag Growth specializes.

Ag Growth designs, manufactures, and sells equipment that stores and processes a wide variety of agricultural materials. Its businesses cover five main areas: grain, fertilizer, food, feed, and seed. Its products include items like portable grain belt conveyors, storm seed treaters, bulk weigh hoppers, and pneumatic conveying systems.

While you not be familiar with the products listed above, nearly every agricultural producer relies on them to do business. They represent critical components for the agricultural industry to function. As long as humans continue to grow food, Ag Growth will be in business.

Transitioning to an international powerhouse

Over the past five years, Ag Growth stock has returned roughly 0% in capital gains, leaving investors with a 4% dividend as the only source of positive returns. While this return profile may not be impressive, there’s reason to believe that the market hasn’t fully rewarded the company for years of hard work.

For example, from 2013 to 2017, sales more than doubled. Profitability followed suit, with EBITDA rising from $64 million to $123 million over the same period. The most interesting part of the story, however, is Ag Growth’s nascent international penetration.

In 2011, the company generated $55 million in international sales, comprising just 15% of its total revenues. By 2017, international sales grew to $152 million, or 20% of total revenues. Recently, management noted that the company’s international sales backlog “is currently at record levels,” with meaningful projects ramping up in both Europe and South America.

Because this story of international growth is just beginning, the market hasn’t fully rewarded the company’s stock price. This should change as sales traction continues.

A reliable dividend with room for growth

Impressive multi-year results have improved the company’s dividend-payout ratio from around 70% to under 50%. So, even with less than half of earnings being paid out, the stock still yields more than 4%.

In recent years, management has dedicated a large amount of cash flow and resources towards growing international operations. Now that it has a foothold to scale with, expect increasing amounts of cash to be dedicated to growing the dividend even further. By 2020, this stock could yield 5% or more based on current prices.

With an attractive payout ratio and room for growth, Ag Growth should be a consideration in all income-based portfolios, especially in tax-advantaged vehicles like RRSPs.

Fool contributor Ryan Vanzo has no position in any stocks mentioned. Ag Growth International is a recommendation of Stock Advisor Canada.

More on Dividend Stocks

woman relaxes with phone
Dividend Stocks

Telus Dividend Reliability: Is the Telecom Still Worth Holding?

Telus (TSX:T) stock might be a falling knife, but the shares still look like a dividend deal going into November…

Read more »

Utility, wind power
Dividend Stocks

I Keep Coming Back to This 5.6% Dividend Stock

Brookfield Renewable offers a 5.6% yield and targets 10%+ FFO growth. Here is what management said, plus risks every Canadian…

Read more »

hand stacks coins
Dividend Stocks

I Split $20,000 Across 3 TSX Stocks for $715 a Year in Passive Income: Here Are the Picks

With their reliable cash flows, consistent dividend growth, and strong long-term growth prospects, these three TSX stocks could help investors…

Read more »

concept of real estate evaluation
Dividend Stocks

A Tailor-Made TFSA Stock: An 8.3% Yield With Monthly Paycheques

A non-bank lender paying monthly dividends, including year-end special dividends, is tailor-made for a TFSA.

Read more »

Train cars pass over trestle bridge in the mountains
Dividend Stocks

CN Stock Looks Like a Buy After Raising Its 2026 Outlook

CN stock has a stronger 2026 outlook and a 2.2% dividend yield. Here’s what supports the buying case and what…

Read more »

woman considering the future
Dividend Stocks

For Retirement Planning, How Much Goes in the RRSP and How Much in the TFSA?

To build tax-efficient retirement wealth, Canadians must know when to prioritize the RRSP over the TFSA, and vice-versa.

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

How I’d Structure a $25,000 TFSA for Steady Income, Stock by Stock

Building a TFSA stock portfolio around balance, sustainability, and capital protection is the key to generating steady, tax-free income.

Read more »

Bank of Canada Governor Tiff Macklem
Dividend Stocks

Bank of Canada’s Rate Decision Is Less Than 2 Weeks Away: 3 TSX Stocks to Watch

The Bank of Canada's rate decision is approaching. Here is what investors should watch at Scotiabank, RioCan and Fortis before…

Read more »