When considering commodity investments, most investors immediately think of oil or natural gas. However, an often-overlooked option is trading stocks in food-based commodities such as wheat. Canada, alongside Russia and the United States, stands out as one of the world’s largest wheat exporters, making it a compelling destination for investors interested in this staple food commodity. In this article, we will discuss five of the top Canadian wheat stocks worth watching in September 2023.
Nutrien Ltd, headquartered in Saskatchewan, is the largest Canadian producer of fertilizers for agricultural crops. While Nutrien doesn’t directly produce wheat, its nitrogen fertilizers play a crucial role in wheat cultivation. Additionally, Nutrien is the world’s largest potash producer, an integral part of the global food supply chain. The company exports its potash and fertilizers to over 40 countries. Investors in Nutrien can enjoy a stable investment, as it is a component of the S&P/TSX 60 and is dual-listed on the TSX and NYSE, offering a solid 3.16% dividend yield.
Formerly known as Canadian Pacific (TSE: CP), CP Rail is one of Canada’s two major railway companies, boasting a legacy dating back to 1881. Recently, it acquired Kansas City Southern for $31 billion in April 2023, leading to its new name. CP Rail has a rich history of efficiently transporting wheat across North America, facilitated by its Dedicated Train Program (DTP), which allows Canadian wheat companies to control delivery trains for up to a year. Although CP Rail pays a modest quarterly dividend yield of 0.70%, it has demonstrated impressive capital appreciation, with its stock gaining over 107% in the past five years.
The Canadian National Railway Company, established in 1919, is Canada’s largest railway operator, covering over 20,000 kilometers of railroads across North America. Like CPKC, CNR plays a vital role in delivering wheat to various markets in North America. In 2022, CNR generated over $17 billion in revenue with a near 60.0% operating ratio. Investors in CNR can expect a modest 2.01% dividend yield, along with solid growth, as the stock has provided a 35% return over the past five years. CNR also boasts a market capitalization exceeding $100 billion, setting it apart in the Canadian market.
Deere & Company, one of America’s premier farm equipment manufacturers, requires no introduction. It produces some of the world’s finest wheat harvesting equipment, including augers, drapers, and combines. The iconic green and yellow John Deere branding is recognized globally, covering everything from lawnmowers to tractors. As an American blue-chip stock listed on the NYSE and a component of the S&P 500 index, Deere & Company offers a 1.15% dividend yield and boasts a market capitalization of $128 billion as of August 2023.
Adecoagro S.A., primarily operating in South America, is an agricultural company involved in the production of various commodities, including wheat, soybeans, ethanol, sugar cane, and rice. With over 234,000 hectares of crops planted in 2023, Adecoagro delivers an annual output exceeding 730,000 tonnes. Shareholders can enjoy a 3.16% dividend yield and a total return of 15.23% over the past five years, making it an attractive choice for investors.
Wheat stocks encompass companies involved in the production or distribution of wheat and other grains. Given the significance of wheat as a global food source, many companies participate in processing and delivering wheat worldwide. These companies can come from various industries, including railways, fertilizers, and agricultural equipment. Wheat stocks are typically considered value stocks, often offering quarterly dividends to shareholders.
Investing in Canadian wheat stocks is easily achievable through any brokerage in Canada. For cost-effective and straightforward online trading, consider reputable discount brokerages like Qtrade or Questrade.
When choosing wheat stocks, prioritize established companies with robust cash flow and revenue growth. Diversified global partnerships enhance growth potential. Assess the stock’s dividend growth history rather than chasing higher yields, as this ensures consistent distributions over time.
Like any commodity, wheat companies are susceptible to fluctuations in wheat futures contract prices, which can impact profit margins. Wheat stocks typically exhibit slower growth compared to tech stocks but often compensate with dividend payments. It’s worth noting that many wheat stocks are involved in specific aspects of the production and distribution process rather than being pure-play wheat companies.
Choosing Canadian wheat stocks can vary based on individual strategies. However, a focus on sustained revenue growth and strong cash flow is generally a sound approach. Consider stocks trading at reasonable multiples such as Price-to-Sales or Price-to-Earnings ratios, and prioritize dividend history over higher yields.
The top choice for a wheat stock in Canada is Nutrien Ltd, a pivotal player in the global wheat industry through its fertilizer production.
The top 10 wheat suppliers globally include Russia, the United States, Canada, Ukraine, China, India, France, Germany, Pakistan, and Australia.
As of 2022, Peru stands as Canada’s largest customer for wheat, importing over 1 million tonnes annually, a relationship spanning more than 40 years.
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