For Canadian Agricultural Chemicals Dividend Growth: Potash Or Agrium?

Includes: AGU, POT
by: Canadian Dividend Growth Investor

Since I'm Canadian, I've been looking to add more positions from the Toronto Stock Exchange. Usually, for Canadian dividend growth companies, the banks and telecoms come to mind. Royal Bank (NYSE:RY), Bank of Nova Scotia (NYSE:BNS), BCE (NYSE:BCE), and Telus (NYSE:TU) are well-known names. Today, I want to talk about the lesser known sector, the Materials sector. In particular, I want to zoom in on the subcategory of Agricultural Chemicals for possible dividend growth plays. I would like to compare 2 names which are listed on both the New York Stock Exchange and the Toronto Stock Exchange. They are Potash (NYSE:POT) and Agrium (NYSE:AGU).

With a growing global population, the world needs more food. Growing good food requires healthy soil, which means more fertilizers are needed.

2012 Net Sales

(Click to enlarge)

From the pie charts, we see that most of Potash's sales come from potash, with nitrogen and phosphate making up the remaining 58% of the sales. On the other hand, for Agrium nitrogen makes up the majority of the sales, specifically, a respectable 62%, with potash and phosphate making up smaller slices. If you're bullish on potash prices, you'd be better off holding Potash. If you're bullish on nitrogen prices, you'd be better off holding Agrium.

Potash does have the competitive advantage of barrier to entry. It holds 5 potash mines in Canada. These mines are limited, and require multi-billion dollar investments, and lead times of 7 or more years. In addition, potash provides "unique benefits as a nutrient, [giving] the potash business distinct advantages over other fertilizer businesses."[1]

However, this competitive advantage could be a double-edged sword. Because of the nature of the business of agricultural fertilizers, the companies' earnings can fluctuate quite a bit. Their earnings are dependent on the global demand and supply of the fertilizers and the prices they're selling for. Then again, the same "problem" applies for Agrium's exposure to nitrogen fertilizer sales.

A High Level Comparison

POT ($38.32)1

AGU ($92.01)1

Market Cap.



S&P Rating2






Morningstar fair value est.









5-Year Avg Div. Growth Rate



Consecutive Div. Increases

2 Years

1 Year

1 - prices as of close of April 19, 2013

2 - see S&P ratings definition

Potash is the winner in this high level comparison. It is a bigger company with a more solid balance sheet. From a valuation standpoint, it is cheaper than Agrium. With a lower beta, Potash is also generally less volatile than Agrium, which makes it a more ideal holding for a long-term investor. Potash also starts with a higher yield and a slightly longer history of dividend increases. However, Agrium did have a history of a faster dividend growth rate. As a possible dividend growth play, perhaps it's more fair to compare the companies' dividend history spanning the last 15 years. In that case, Agrium would only have started increasing the dividend in 2012, while Potash has increased (and froze) dividends in the past.


As mentioned above, the nature of agricultural chemicals business causes the companies to have volatile earnings based on the demand and prices the fertilizers are selling for at the time. As such, I would not allocate as much capital into this category compared to the amount I would place in Canadian banks or telecoms. That said, I think Potash is a good place for diversification seeing that it made progress in its dividends by increasing it twice in 2012 and once so far this year. In addition, from the last earnings call, "in potash, we anticipate a significant rebound in global demand in 2013."


Agrium 2012 Annual Report

[1] Potash advantage

Disclosure: I am long POT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.