Nutrien (TSX:NTR) is down about 12% in 2024. Investors with a contrarian strategy are wondering if NTR stock is now undervalued and good to buy for a self-directed portfolio focused on dividends and total returns.
Nutrien stock
Nutrien trades near $67 on the TSX at the time of writing. The stock was as high as $82 earlier this year and is way off the $140 it reached in 2022.
Nutrien is a global supplier of fertilizers and services for farmers. The company sells potash, nitrogen, and phosphate in bulk to countries around the world and also provides products directly to farmers through an extensive retail network.
Prices for the products are impacted by global supplies as well as demand fluctuations that tend to follow crop prices and crop yields. When farmers are making good money, they tend to spend more on fertilizer to boost production. When good weather leads to bumper crop yields, there can be downward pressure on commodity prices, leading to reduced fertilizer demand. Currency fluctuations also come into play.
As weather conditions become more variable around the globe, the impact can be increasingly volatile in the agriculture industry.
In the second-quarter (Q2) 2024 earnings report, Nutrien highlighted anticipated record corn and soybean yields in the United States this year as a cause for a drop in crop prices in the quarter, but the demand outlook remained stable amid lower market prices for potash and nitrogen.
In Brazil, crop prices and margins for farmers improved due to a weaker local currency. Nutrien expected full-year fertilizer demand in the country to be similar to previous record levels.
In Australia, Nutrien expected stable product demand through the end of the year.
Potash producers negotiate fixed-price potash contracts with major buyers, including China and India, each year. The latest Canpotex contract announced with India in the summer came in at US$283 per metric ton, down from US$307 last year.
Spot market potash prices initially soared as high as US$1,200 per metric ton in 2022 when the war in Ukraine started. Russia is a major fertilizer producer. Market prices for potash have since trended lower and now sit around US$300, a level last seen in 2021.
Nutrien earnings
For the first half of 2024, Nutrien reported adjusted net earnings per share of US$281 compared to US$3.63 in 2023. Lower commodity prices are largely to blame for the drop. The net selling prices for potash, nitrogen, and phosphate all declined. Nutrien’s guidance on 2024 volumes improved a bit for potash, narrowed for nitrogen, and dropped slightly for phosphate.
Nutrien’s Q3 2024 results come out on November 7. Investors will want to see if there are any material changes to the guidance for this year, as well as any indications of anticipated market conditions in 2025.
Nutrien dividend
Nutrien pays a quarterly dividend of US$0.54 per share. On an annualized basis, this yield is about 4.4%, based on the current share price. The payout should be safe, but investors shouldn’t expect to see bonus distributions or meaningful share buybacks in the near term due to weaker market prices for the core products.
Is Nutrien stock a buy?
The long-term outlook for fertilizer demand should be positive as global farmers are forced to get better crop production out of less land in order to feed more people. Commodity markets, however, go through cycles, and more downside could be on the way for fertilizer prices before the trend reverses. As such, new Nutrien investors might have to be patient.
Those who have a contrarian investing style and think fertilizer prices will rise in the next couple of years might want to start nibbling near this level and look to add on additional weakness. The dividend yield is decent, so you at least get paid reasonably well to ride out any additional turbulence and can benefit from any pop in the share price that might occur.
That being said, I would probably look for other dividend opportunities in the market today to put cash to work.
