| With falling interest rates, it’s time to think more seriously about dividend yield. In our late May ag equity report, your correspondent considered strategies for investing in an uncertain inflation environment. Now, Fed Chairman Jerome Powell has signaled it is time to cut the U.S. Fed funds rate. Unemployment is at least of equal concern to the Federal Reserve as inflation. Some 23 agribusiness companies offer dividends at more than 4%. Several, including WILC, MRVSY, BASFY, and LND, deserve examination. |
The chart above identifies 23 publicly traded agribusinesses that pay dividends at a rate above 4% (as of August 30). The highest, Brazil Agro (NYSE: LND), offers a yield of 14%, but the company reported a fall in revenues of 36% last quarter compared to the same quarter a year earlier. Brazil Agro acquires, develops, and sells rural properties, mainly farms, in Brazil, relying on grain, sugarcane, livestock, cotton, and other farmgate prices for appreciation and rent. These commodities have fallen considerably in price since Russia invaded Ukraine in 2022. As a result, the Brazilian real (BRL) has depreciated some 10% relative to the U.S. dollar. Is it time to pick up a few shares of LND to gain a foothold in Brazilian agriculture? Perhaps. Brazil, after all, is the leading supplier of ag commodities to China, and Brazil Agro owns more than 600,000 acres. Since the beginning of its operations in 2006, it has acquired a total of 18 properties and sold five. For the strong at heart, especially aggressive investors who missed the Brazilian runup earlier this decade, Brazil Agro is worth a look. Earnings before interest, taxes, depreciation and amortization (EBITDA) of $114 million more than covers its dividend distribution of $65 million. Lower interest rates should also improve the company’s ability to service $1 billion debt. There are many risks, including currency, commodity price exposure, financial, and geopolitical. Due diligence is required. Another high-yielding agribusiness stock in a cyclical downturn is Houston-based CVR Partners (NYSE: UAN). It sells ammonia to farmers for nitrogen fertilizer. CVR’s forecast dividend of $7.05/year offers a 10% rate of return on its stock price of $70. Dividends have been highly choppy, though, depending on ammonia margins. In 2019, CVR Partners paid a dividend of just $0.40/share, but in 2023, it paid $22.00/share! Aggressive investors will like that CVR has reported operating cash flow last year of $103 million, more than covering its forecast dividend of $75 million. Yet, ammonia prices have fallen 75% from their highs set when Russia invaded Ukraine. As with Brazil Agro, the question is whether the pendulum has swung too far, and now that interest rates are falling, can investors find value? For those interested in more stability, BASF is well-known to farmers with herbicide and seed brands like Liberty, Rely, Finale, and Provysol. Chemical and Engineering News ranks BASF as the largest chemical company in the world. At current stock prices, the company offers a 7% dividend yield. It isn’t without risks, though. Higher feedstock prices caused by the Russian invasion of Ukraine have reduced BASF’s profitability. Furthermore, the company has made significant investments in China, which has suffered economic setbacks. Due to reduced profits, BASF slashed its dividend in 2017 from 2.42 euros/share to 0.66 euros/share, where it remains today. A positive is that BASF generated earnings before interest, taxes, amortization and depreciation (EBITDA) of $5.6 billion, more than enough to cover its dividend of $3.3 billion. |