There aren’t all too many dips to be buying up these days, at least when it comes to the well-known large-cap dividend payers that are firing on all cylinders.
Of course, you could go hunting for the names under pressure, but, for the most part, quality is starting to become more fairly valued, even a bit on the expensive side, based on where you look. In any case, I think stock pickers can still unlock alpha out there on the TSX Index, especially for those willing to venture beyond the typical names within the energy and financial sectors.
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A corrected dividend stock that’s actually feeling the wind at its back
Energy and financials have been hot of late, to say the least. And while I still think these sectors are undervalued, especially relative to some of the more overheated places in the market (most notably AI-driven tech), I still think those looking for deeper value might wish to give a name like Nutrien (TSX: NTR) a second look.
Despite its latest correction, now down 14% from its 52-week high, or more than 30% from its early-2022 highs, I still think investors are getting one of the most durable dividends out there on the cheap. The stock currently goes for 14.7 times trailing price-to-earnings (P/E).
When you consider favourable trends that could work on the side of fertilizer prices, especially as the Strait of Hormuz stays closed for a while longer (or maybe even a lot longer), I think shares of NTR are starting to look a tad on the underpriced side. In any case, the 3.1% dividend yield, which is poised for greater growth, seems like it could be a main draw, especially as the Canadian banks look to experience a bit of yield compression from the epic past-year rally they’ve enjoyed.
Nutrien stock may very well be a mispriced dividend gem
While yields below 3% may very well be here to stay, at least until the big banks crank up the dividend growth (and they most certainly could start getting more generous with dividend increases), I do think that a name like Nutrien remains a hidden gem that’s hiding in plain sight.
The $47.4 billion company is in a rather unique position globally. It’s an agricultural commodity powerhouse and one that’s operating with great efficiency. With a decent first quarter in the books and many banks expecting better things for the fertilizer industry, I think it’s hard not to view Nutrien as more of a contrarian dividend play than a name that’s running out of steam amid the geopolitical headlines.
Nobody knows what is going to happen next with the conflict in the Middle East or what the implications will be on commodity prices, as oil and fertilizers fluctuate wildly. But for long-term investors, I think the near-term needle-moving factors matter far less, especially at these prices. The company is earning well; its economic moat lies in its low-cost production and the quality of its reserves.
When you factor in how AI could lower costs and drive further efficiencies, it becomes more apparent that NTR stock is a great long-term value that might be neglected. On a forward-looking basis, shares look even cheaper at 12 times forward P/E. I think it’s time to step in.
