Nutrien (TSX:NTR): Profit Off the Fertilizer Shortage

The Canadian company Nutrien (TSX:NTR)(NYSE:NTR) profits off the fertilizer shortage.

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The world is in the middle of a fertilizer shortage. Over the last 12 months, prices have nearly doubled, causing profits at fertilizer companies to grow. There are many factors that can explain what’s happening. First, global supply chains are strained. Second, the conflict in Ukraine has caused a loss of supply from big companies in Eastern Europe. Third, energy prices are rising, leading to higher costs for producers. Collectively, these factors have led to fertilizer prices going up.

Canadian fertilizer companies stand to benefit from this trend. As a country with good relations with the U.S. and E.U. and an ample fertilizer supply, it can become the supplier of choice when relations with China and Russia get icy. Nutrien (TSX:NTR)(NYSE:NTR), in particular, is well positioned to fill this niche, as one of the world’s largest suppliers of key commodities needed to make fertilizer.

What Nutrien does

Nutrien is a company that mines potash, nitrogen and phosphate — the three key ingredients of fertilizer. The company sells these ingredients individually; it also supplies fertilizer that’s ready-to-go for farmers. In addition to supplying raw commodities, Nutrien also

  • Develops services that help farmers keep track of their fertilizer inventory;
  • Stores fertilizer for customers; and
  • Sells products for protecting and maintaining crops.

It’s a diverse package of services that could really take off if the fertilizer shortage continues. Nutrien already describes itself as the world’s largest supplier of crop inputs. It could grow even larger if fertilizer prices rise.

How Nutrien benefits

Nutrien benefits from the fertilizer shortage, because it sells fertilizer and the raw inputs that go into it. Thanks to the fertilizer shortage, all of these inputs are rising in price. The fact that this is good for Nutrien can be seen in its second-quarter earnings release. In the quarter, NTR delivered

  • $14.5 billion in sales, up 45%;
  • $3.6 billion in earnings, up 224%; and
  • $3.4 billion in free cash flow (a cash-only measure of profit), up 142%.

It was a solid showing. Much like the oil companies that are rising this year, Nutrien made big profit gains due to the commodity it manufactures being in short supply. The profit gains have led to Nutrien stock rising. They might also lead to a higher dividend payout in the future. Nutrien is a dividend stock that currently yields 2% (“yield” means percentage of stock price paid back to shareholders in dividends). If Nutrien keeps growing its earnings, then its dividend could grow as well. That could lead to a higher dividend yield in the future.

Foolish takeaway

2022 has been a great year for fertilizer companies. If the world’s supply chains keep experiencing issues, then that will continue to be the case. Unfortunately, that could lead to rising food prices and other issues. But companies like Nutrien can be bought and sold easily on the stock market. So, there are ways to invest in the future of the fertilizer industry and get some of the profits in the form of dividends.

That doesn’t mean you should run out and put 100% of your money in fertilizer stocks — as always, diversification is key — but it does imply that some exposure could be a good idea.

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 Andrew Button has no position in any of the stocks mentioned. The Motley Fool recommends Nutrien Ltd.

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