The Canadian community scene seems rich with swelling dividend yields these days. Undoubtedly, 2022 was a year when various commodity stocks gained considerable ground over the likes of big tech, which crumbled under the pressure of Federal Reserve interest rate hikes. Now that the Fed has shown signs of slowing, the script has flipped, with tech leading while various resilient commodity plays are now dragging their feet, at least on a relative basis.
As we head into the second half of the year, I think that we could see the script flipped, yet again. Not to say technology stocks are overpriced or bubbly. Though a few names may be, I simply think there’s more upside to be had in some of the value names. If there’s a rotation back towards value once again, I’d look for the TSX Index (which is lagging behind the S&P 500 so far this year) to play catch up.
So, if you think the tech trade is getting a tad too hot, the following names may make it easier for you to sleep at night. Without further ado, consider Canadian fertilizer firm Nutrien (TSX: NTR) and gold-mining top dog Barrick Gold (TSX: ABX). Though commodity prices haven’t been as hot as they used to be, I continue to view them as worthy portfolio diversifiers for any investor who seeks to maximize their risk/reward tradeoff.
Companies like Nutrien and Barrick Gold won’t make you quick gains like tech stocks did at the start of 2023. What they can do is help expose you to areas of the market that may be in a spot to ride out market-wide turbulence. At the end of the day, a more diversified portfolio is never a bad thing.
Canada’s commodity producers (Nutrien for agricultural commodities and Barrick for precious metals) are among the best on the planet. And as negative momentum builds, I think the odds of getting a great bargain will improve with time.
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Nutrien
Nutrien stock shed around half of its value from peak to trough before its latest march higher. Shares are up around 10% from their May lows and could be in a spot to gain even more ground, as investors forgive the company for its weak first-quarter result. Potash prices are down considerably from their highs. However, Nutrien continues to be one of the best-in-breed producers.
Though potash demand could continue to be weighed down in the medium term, I still find potash (and similar fertilizers) will be in high demand as the world population swells. More people means more food. To get more food, greater crop yields will be needed, and that calls for more fertilizer.
Commodities can fall into funks, and when they do, investors may wish to average into a position. At writing, Nutrien shares sport a nice 3.6% dividend yield.
Barrick Gold
Gold is a rather speculative asset, but it’s also a great hedge and portfolio diversifier for investors seeking to construct the ultimate all-weather portfolio.
Today, gold stocks are still off considerably from their highs, even as gold stabilizes in the US$1,900 range. Barrick stock is off 45% from its all-time high, and though gold seems to be retreating steadily off its latest peak, I think that once rates begin to retreat, gold may have room to run.
Further, Barrick’s dividend (yielding 2.42%) is bountiful and could grow if gold does find its footing again. As the Fed pauses, the next step may be small rate cuts. Such rate cuts could set the stage for a nice rally, in my opinion.
Better buy: ABX or NTR stock?
Barrick stock looks like a better bet here, even if the dividend yield isn’t as impressive. I’m a big fan of gold as a diversifier for those inevitable rainy days. As recession nears, there could be many more rainy days to come.
