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Should Nutrien (TSX:NTR) Stock Be on Your Buy List?

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Nutrien (TSX:NTR)(NYSE:NTR) is a relatively new ticker on the TSX Index, but the company’s roots run deep in Canada, and the stock has the potential to significantly grow your investment portfolio.

Agrium and Potash Corp merger

Potash Corp and Agrium merged in early 2018 to create Nutrien. The combined company is the planet’s largest crop nutrients supplier.

A multi-year slump in the fertilizer industry sowed the seeds of the move. It made sense, as both companies already marketed their potash production together through Canpotex. Potash Corp was primarily a wholesale provider of potash, nitrogen, and phosphate. Agrium served those markets and also had a global retail business that supplied growers around the world with seed and crop protection products.

The result is a crop nutrients giant with a more balanced revenue stream and better opportunities to grow revenue through news initiatives.

Market outlook

Nutrien made two important announcements in recent weeks that make the stock a compelling buy right now. The company is boosting potash production by a total of one million metric tonnes through the second half of 2021. The initial half-million increase came in response to strong global demand and tight supplies that are providing support for higher prices. Nutrien then doubled the production hike to cover the anticipated demand that will come as a result of sanctions placed against Belarus. The country is a major producer of potash through government-controlled BPC.

Nutrien also cites strong global crop prices for anticipated demand increases in key markets, as farmers plant more land to boost profits while they can get top prices for crops such as corn, soybeans, cotton, and canola.

Beyond the current surge, Nutrien should see robust demand expand in the coming decades. Population estimates see the number of people in the world rising from roughly 7.8 billion in 2020 to 10 billion by 2050. Farmers will need to produce more food to feed the extra people as well as the animals they want to eat.

Dividends and share buybacks

Nutrien raised the dividend by 15% in the past three years and repurchased 12% of the outstanding common stock. Strong free cash flow generation and the positive market conditions should lead to more dividend increases and share buybacks. The existing payout provides a 3% yield at the current share price near $74.

Should you buy Nutrien stock now?

In the June investor presentation, Nutrien indicated it will provide raised guidance numbers for the year when it releases the Q2 2021 earnings report. Positive news is expected, but the market might not realize how big an impact higher prices and increased sales volumes can have on EBITDA. Nutrien is a low-cost producer and has the ability to ramp up production at state-of-the art facilities that were completed by Agrium and Potash Corp before they merged.

The company has more than 20% market share of the agriculture retail sector in the United States. Its new digital platform is leveraging the existing 500,000 retail client accounts to drive additional revenue while helping global growers manage their operations more efficiently.

Commodities go through cycles. When times are good, companies like Nutrien can generate massive free cash flow. Volatility should always be expected, but the crop nutrients rebound should be in the early stages of strong recovery. If you have some cash to put to work, Nutrien looks attractive right now.

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.

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