Investors looking for top defensive options in this market may certainly look at Nutrien (TSX: NTR) as a top play right now. This potash producer is a top commodity play, benefiting from long-term secular growth trends in global food production, which are hard to ignore. Essentially, as the world’s population increases over time, we’re going to need more food and greater crop yields. Fertilizer and the other nutrients the company produces are key to this discussion over time.
That said, Nutrien is also a top dividend stock that doesn’t get enough attention for its 4.7% dividend yield. Let’s dive into whether this stock is a buy on the basis of its dividend and where this stock could be headed from here.
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Dividend yield boosted by share price decline
It’s worth noting that most investors may not necessarily consider Nutrien a dividend stock due to the fact that its yield was previously rather minimal. When Nutrien stock traded above $130 per share in 2022, the stock’s yield was around 2%. Today, at roughly $60 per share, this yield is considerably higher. (Price and yields are inversely related).
That said, I think the company’s dividend is well-covered, and the company’s cash flow profile remains solid. As a top manufacturer and producer of fertilizers and other crop nutrients, Nutrien’s market position and pricing power remain strong. Despite commodity price-related headwinds in recent years, this is a company that’s likely to retain its dominant position in the global marketplace for goods. Thus, for those seeking a reliable dividend stock, I’d put this company near the top of any list.
However, these recent stock price declines (which have been a rather slow and steady grind lower) are concerning. No investor wants to receive a yield of nearly 5% but lose 18% on the capital portion of their investment (as they have with Nutrien over the past year). But if things turn around, this stock could be worth considering, particularly at these lower levels.
Valuation makes sense
Despite waning revenues and earnings in recent quarters, there’s an argument to be made that the market may have overdone the selloff with Nutrien. The company’s current forward price-to-earnings multiple of just 11 is very low, even for this company on a historical basis. Thus, I’m a believer that value investors can certainly pick up shares at current levels and be patient in waiting for a rebound. Getting paid 5% to be patient and potentially picking up more shares at cheaper prices down the road is a strategy that could be a winning one over time. I remain hopeful this is the case.
Of course, there are no guarantees in investing. The company could cut its dividend tomorrow (Nutrien has slashed its dividend in the past) or decline to a level where the market dictates a cut is the best move. But right now, I think the situation with this company remains stable, and too much bad news is priced in here. I’d be a buyer.
