It seems that the stock market, like a rollercoaster, is prone to dramatic dips and rises. In 2024, dividend stocks, represented by SCHD, took a notable dip after the fervent “Santa Claus” rally of late 2023. The market’s tumultuous reaction stemmed from speculation about the Federal Reserve’s potential rate cuts and the ensuing impact on stock values.
While the Fed initially hinted at triumphing over inflation in its last 2023 meeting, recent hawkish comments from Federal Reserve officials have thrown a spanner in the works. This about-turn has instigated market turbulence, especially in sectors like utilities (XLU), REITs (VNQ), and materials and miners (GDX), ultimately undermining investor confidence in dividend stocks.
Their confidence, however, appears to be misplaced. The Fed, in all probability, will cut interest rates this year. Corporate bankruptcies are on the rise, colossal corporate and commercial real estate debt is maturing, political pressure is mounting, and several key economic indicators are flashing warning signs of a looming recession.
As the clouds of uncertainty loom over the stock market, savvy investors see this as a golden opportunity to snatch up quality dividend stocks at rock-bottom prices. Here, we spotlight two of the most promising opportunities beckoning investors in this turbulent landscape:
#1. Nutrien Ltd. (NTR) Stock
NTR, forged from the amalgamation of Potash Corp. of Saskatchewan and Agrium in 2018, stands as the global behemoth in crop nutrients. Operating across Retail, Potash, Nitrogen, and Phosphate segments, NTR’s Retail wing, even amidst market fluctuations, is poised to generate over 50% of the company’s gross profits. This segment also unfailingly churns out revenue, offering resilient support to NTR’s growing dividend payout across fluctuating agricultural market cycles.
Scarce production costs and its competitive edge in potash and nitrogen constitute the bedrock of NTR’s competitive advantage. To bolster its growth, NTR is focused on leveraging its integrated business model, enhancing operational efficiencies, and augmenting free cash flow through strategic investments in products, production capabilities, supply chains, and digitalization of operations. The company also has its sights set on strategic acquisitions and expansion projects.
Standing on a strong financial foundation, evidenced by a BBB (stable outlook) credit rating from S&P, robust liquidity, and well-laddered debt maturity schedule, NTR is well-equipped to withstand industry volatility and embark on fruitful long-term investments.
NTR’s capital allocation strategy emphasizes fortifying its competitive positioning through investments aimed at cost-cutting and increasing productive capacity, capped by buybacks and dividends. Strikingly, NTR emerges as an attractive proposition for investors with a compelling total return potential projecting a 5.4% dividend per share CAGR through 2027.
Yet, NTR is not immune to risk. Fertilizer price volatility and mounting competition could menace its profitability. Nonetheless, NTR’s diversified income streams, robust free cash flow, and favorable industry macroeconomic factors instill confidence in its long-term sustainability.
Last but not least, NTR currently lingers below its historical averages in terms of valuation, amplifying the attractiveness of its dividend and buyback yield, and its anticipated long-term growth.
#2. Newmont Corporation (NEM) Stock
NEM, the world’s largest gold miner, holds a production profile on par with Barrick Gold (GOLD) and Agnico Eagle Mines (AEM) combined. With a treasure trove of Tier 1 assets and high-potential development projects like Tanami Expansion 2 and Ahafo North, NEM embodies enticing growth prospects.
A recent acquisition spree, including Newcrest Mining, has expanded NEM’s portfolio, adding substantial copper exposure and lowering production costs, auguring well for improved profit margins to be further amplified through Newmont’s Full Potential program. With about 80% of its production situated in low-risk mining jurisdictions, NEM fortifies its status as one of the industry’s lowest-risk miners.
Financially, NEM stands tall with a BBB+ credit rating from S&P, an A- credit rating from Fitch, a low net debt to adjusted EBITDA ratio of 0.7x, and robust liquidity.
NEM’s key long-term growth drivers include potential stock buybacks, an attractive exploration pipeline, operational efficiency enhancements, and leverage to gold (GLD) and copper prices. With the long-term prospects for both metals looking upbeat, NEM’s valuation appears alluring as it trades at a substantial discount relative to historical averages and peer companies like AEM. This suggests significant long-term total returns.
Investor Takeaway
In the tumult of the market, opportunities abound for those willing to venture into the realm of high-yield stocks. The recent market upheaval has gifted investors with the chance to snap up quality businesses at bargain prices. In anticipation of forthcoming interest rate cuts, loading up on investment-grade blue chips with attractive dividends like NTR and NEM presents a strategy with potential for outsized long-term total returns and attractive income yields.
It’s important to note that this article discusses securities that do not trade on a major U.S. exchange. As always, investors should be well-informed about the risks associated with these stocks.
