Fill your basket with food and fertilizer dividends

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The world needs to produce After food to feed everyone for years to come. Period.

Food shortages are likely to be a unfortunate megatrend of the 2020s. Rising food demand joins another megatrend: fragile global supply chains.

Consider these bleak outlooks from the United Nations World Food Program’s 2022 outlook (emphasis mine):

“Globally, levels of hunger remain alarmingly high. In 2021, they surpassed all previous records as reported by the Global Report on Food Crises (GRFC), with nearly 193 million people acutely food insecure and in need of urgent assistance in 53 countries/territories, according to the findings of the 2022 GRFC. This represents an increase of almost 40 million people from the previous record reached in 2020 (reported in the GRFC 2021).

“In 2021, almost 40 million people were facing emergency conditions or worse, in 36 countries. More than half a million people (570,000) facing Catastrophe — starvation and death.

Global supply chain issues have only exacerbated the problem. In June, Raka Banerjee, project coordinator at the World Bank’s Development Data Group, highlighted the impact of a major disruptor: Russia’s attack on Ukraine:

“So together, Ukraine and Russia produce 15% of the world’s wheat, but 30% of the world’s wheat exports and 60% of the world’s sunflower oil. And after Canada, Russia and Belarus are the second and third largest producers of potash, which is an essential ingredient for fertilizers. And fertilizer prices are now almost three times higher than they were a year ago, which is sure to affect food production across all crops and regions in the months to come.

That’s a double, say Alzbeta Klein, CEO and director of the International Fertilizer Association and John Baffes, senior economist at the World Bank:

We have a crisis today because we do not export grain from Russia and Ukraine. And we have a food crisis brewing because we don’t have fertilizer to fertilize the land all over the world so that we can produce for the next harvest and the one after.

The first has already led to a spike in food prices, which are almost always in an uptrend but have been climbing sharply lately.

The backdrop is a pressing need for the world to produce more and more food to meet the needs of a burgeoning global population.

The Food and Agriculture Organization of the United Nations predicts that the world will need to improve its overall food production by 70% between 2005-2007 and 2050 to feed an estimated population of 9.1 billion people, production in the developing countries to “nearly double”. .”

Some foods could use an even bigger boost. Meat production, for example, is expected to increase by “more than 200 million tonnes to reach a total of 470 million tonnes in 2050”, according to the FAO.

It’s a logistical nightmare, compounded by a growing trend of counter-globalization, as two years of COVID- and Ukraine-related shortages have opened nations’ eyes to the fragility of global supply chains.

But it’s also one that clearly bodes well for companies tasked with producing food at an ever-increasing rate. This has put many agricultural and food stocks on my radar, not only for their growth potential, but also for the potential for this megatrend to fertilize a number of nascent dividends.

Agribusiness/Food production

You can read my longer case for Archer Daniels Midland

ADM
(ADM, yield 1.9%)
here, but in short, ADM is at the very heart of the global food supply. Its 400 crop supply facilities and 270 processing plants help ADM turn raw crops into supplements and ingredients, from cocoa powders and chocolates to soy protein that enables deli meats and hot dogs, and sweeteners. corn, dextrose and citric acids that help flavor your favorite drinks.

Accelerating dividend growth, low volatility, and management that actually knows when to buy back its shares are among several factors that make ADM an elite vehicle for tapping into the food supply megatrend.

But this is not the only way.

Bunge

BG
(BG, 2.5% return)
is another attractive agribusiness – and Archer Daniels Midland would have told you the same in 2018. At least for a little while. Earlier that year, ADM reportedly expressed interest in a mega-merger, but talks fell apart within months.

Either way, this maker of specialty oils and ground grains is another important cog in the food production machine. Strong food demand and a tight supply of raw materials boosted Bunge’s earnings, allowing it to greenlight a significant jump in its payout: a 19% increase to 62.5 cents per share. That could help revive BG shares, which lagged significantly as it kept its payout steady a few years ago.

See also Ingredient

INGR
(INGR, yield of 2.8%)
, which helps produce your favorite food tastes and textures. For example, its Precisa and Penpure starches allow bakers to make fries that are light and crispy or hard and crispy. Meanwhile, its stevia-based ingredients help improve sweetness and minimize bitterness while reducing the sugar content of drinks, ice creams and sauces.

A rebound in demand above pre-pandemic levels is setting the company on course for double-digit growth in sales and operating profit. That should give INGR a bit more flexibility to do something about dividend growth, which (along with equities) has stalled since 2018.

Fertilizers and chemicals

Fertilizer and chemical companies will certainly also be critical to food production efforts and could benefit from continued near-term upside as supply chain issues ease.

Mosaic (MOS, 1.3% efficiency), for example, is the largest US producer of potash and phosphate fertilizers. Weak phosphate volumes this year have admittedly dulled a buoyant potash market, sending stocks on a roller coaster into 2022 – MOS shares have roughly doubled since the year started in April, but are now only “that” up 38%. But be careful: the dividend is still recovering from a brutal hack that saw the payout drop 91% — from 27.5 cents per quarter to 15 cents, then to just 2.5 cents — in 2017. (To its credit , Mosaic resumed dividend growth in 2019 and has since become more aggressive, bringing payouts down to 15 cents.)

CF Industries (CF, 1.6% return), which produces agricultural fertilizers, is also on our radar after signs of life from its dividend. The payout, which had been parked at 30 cents per quarter since 2015, jumped by a third in April, to 40 cents per share.

Corteva (CTVA, 1.0% return) and Nutrien (NTR, yield 2.2%) should also be on your radar for signals of increased dividend aggressiveness.

The former, an agricultural chemical and seed specialist, was formerly DowDuPont’s agriculture unit but was named Corteva in February 2018 and spun off in June 2019. It has little dividend history but started its listed life with a payout of 13 cents, then increased by a penny a share this year and last.

The latter, a Canadian fertilizer company, is the largest producer of potash and the third largest producer of nitrogen fertilizers in the world. It also has a network of 2,000 retail stores. It’s perhaps the most balanced of the fertilizer games, though I’d like to see it improve its overall dividend growth by 20% since 2018.

Brett Owens is Chief Investment Strategist for Opposite perspectives. For more income ideas, get your free copy of his latest special report: Your early retirement portfolio: huge dividends, every month, forever.

Disclosure: none

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