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Free cash flow was US$476 million in the latest quarter — more than 100% above the same period last year.
The company’s wholesale business sells potash, nitrogen, and phosphate to countries around the world on large annual contracts and to buyers on the global spot markets. The retail division sells seed and crop-protection products.
Worldwide potash shipments are expected to be near record levels in 2021. Strong crop prices carried over from last year are driving expanded planted acreage, and that should translate into higher fertilizer sales through 2021 and into next year.
The long-term outlook also appears robust for the sector. Over the next 20 years, the world population is expected to increase by roughly two billion. As a result, farmers will need to get better yields out of their fields. This will occur while urban sprawl continues to consume arable land.
The crop nutrients market went through a multi-year slump but appears to be on the upswing in a new cycle that could last for years. Investors with a buy-and-hold view might want to add Nutrien to their portfolios today. At the time of writing, the stock provides a dividend yield of about 3%.
The share price is near its 12-month high, but still appears undervalued. Nutrien has the potential to generate massive free cash flow as commodity prices rise.
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Royal Bank of Canada
Canada’s largest bank by market capitalization reported net income of $4 billion in the most recent quarter. Return on equity came in at an impressive 19.4% and the company remains well capitalized with a CET1 ratio of 12.8%. In fact, Royal Bank is sitting on significant excess cash, and investors could see the bank make a strategic acquisition to boost growth. Once the government gives the banks the green light to raise dividends again, investors should see a generous increase.
Royal Bank’s balanced business lines generate revenue across several sectors. The commercial and personal banking business is very strong in Canada, as are the capital markets and wealth management divisions.
South of the border, Royal Bank spent US$5 billion a few years ago to buy City National to boost its American presence. The business saw loans and deposits jump 28% the latest quarter compared to the same period last year.
Interest rates will eventually rise, and that should boost margins on deposits and boost assets yields in the coming years.
Royal Bank’s share price isn’t cheap, but the stock still deserves to be an anchor holding for a retirement portfolio. Investors who buy Royal Bank today can pick up a 3.4% yield.
The bottom line
Nutrien and Royal Bank are leaders in their respective industries and deserve to be buy-and-hold picks for a TFSA or RRSP. The companies have the ability to ride out downturns and should deliver strong long-term returns.
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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.
The Motley Fool recommends Nutrien Ltd. Fool contributor Andrew Walker owns shares of Nutrien.