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An investor's guide to Agrium, a high-dividend company

An investor's guide to Agrium, a high-dividend company (Part 1 of 7)

An investor’s guide to Agrium, the largest agricultural retailer

What Agrium offers

Agrium (AGU) is one of the most diverse fertilizer companies in the industry. It produces all three types of fertilizers: nitrogen, phosphate, and potash. But its biggest segment by EBITDA (earnings before interest, tax, depreciation, and amortization) is its Retail division.

PotashCorp (POT), Mosaic (MOS), and CF Industries (CF) are some of Agrium’s peers. But none of them have a retail business.

With a significant 3.8% share of the Market Vectors Agribusiness ETF (MOO), Agrium is the largest global agricultural retailer.

Agrium Business ModelEnlarge Graph

Agrium’s business

Unlike most of its peers, Agrium is a vertically integrated agricultural input business. In other words, Agrium not only manufactures the end product but also sells it directly to end markets through its retail business.

The company has production facilities in North America, wholesale distribution facilities in Europe, and participation in nitrogen facilities in South America, Africa, and the Middle East. Agrium also has numerous retail facilities in North America, South America, and Australia.

Retail is the largest component of Agrium’s adjusted EBITDA, representing 43%. Because of this, many analysts argue that Agrium’s growth is within the company’s control instead of being dictated by macro events such as fertilizer prices.

The company’s wholesale business includes Nitrogen (34%), Potash (14%), and Phosphate (3%). The remaining 6% is AAT (Agrium Advanced Technologies) and wholesale products purchased for resale.

Performance

As of May 12, 2014, Agrium has a market cap of $13 billion. In recent years, the fertilizer industry has experienced significant drawbacks—mainly due to higher supply and lower demand. While peers such as Potash Corp. (POT) and Mosaic (MOS) have lost up to 37.4% of their share value over the past three years, Agrium has managed to increase 8.3%. But Agrium has decreased 1.04% since the beginning of 2014.

The performance of fertilizer companies is highly driven by industry-related factors. But there are specific aspects of each fertilizer company that help you understand and predict performance. This series will go over what affects Agrium specifically and how you can understand these indicators.

The Realist Discussions

  • Panamakid

    I own a very large IRA position in TNH and a much smaller position in AGU. TNH has an 8.43% dividend vs. 3.29% for AGU, so why should I cut my TNH position and add more AGU? I have some big time red numbers in my TNH stake.

    • garilou

      Maybe because

      1. The dividend yield is not 8.4% any more but 7.73% (which is still very high), but has a decrease history, while Agrium dividend is lower but has increased.

      2. TNH is less diversified.

      3. AGU share price has (IMO) maybe more chances of going up.

      That said, I would certainly not get rid of all TNH, since that sector has been so beaten down, it has more chances not to go down much in case of a correction. But You could do what you just said: sell some TNH and replace it by a position in AGU (you would get almost 1.5 shares of AGU for one of TNH, so you would get almost the same $ amount of dividend.