September 21, 2014

Canadian Dividend Stocks In Food & Agriculture

Known as one of the largest agricultural producers and exporters in the world, Canada can count on its large prairies (Alberta, Saskatchewan & Manitoba) to produce crops and vegetable and on the Okanagan Valley (British Columbia) to produce wines of high quality.

 

Canada is not only known for its producing capacities but also for the high quality food it processes. Our companies benefit from advanced technologies and they are leaders in biological and organic agricultural development. They basically have the winning conditions: abundant and cheap energy sources, water, natural resources and strict food quality regulations. Instead of focusing on production only, Canadian companies have a more quality focus and this is why it is so good to eat in Canada compared to anywhere in the world.

 

okanagan valleySince Canada is one of the largest countries in the world, it provides it a great advantage for agricultural. This is how several companies have emerged from this sector. We tend to forget about food companies when we think of Canadian dividend stocks but you could be surprise to find a few gems in there.

 

Those dividend stocks are probably underrated because their growth is not as sexy as the Telecoms and their profit not as important as Canadian banks. This is because they evolve in a mature industry and faces now competitors with lower cost structures coming from emerging markets. Nonetheless, those companies show a great history of stable dividend payoff.

 

In addition to the agricultural market, we can found other great dividend payers among the food industry. The major grocery chains own the vast majority of the market and they earn some decent cash flow. They also have the habit of keeping their dividend payout ratio to a low level to insure a steady dividend growth.

 

At Canadian Dividend Stocks, we currently follow 6 stocks related to the food and agricultural industry (click on the Name of each company to see the full analysis):

 

Metro – MRU/A

Loblaw – L

Alliance Grain Traders – AGT

Canada Bread – CBY

George Weston – WN

Premium Brand Holdings Corporation – PBH

 

 

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George Weston Ltd (WN)

When you look the Toronto-based food mega-conglomerate George Weston Ltd (WN) today, it is humbling to think that it all began 130 years ago in 1882 when a young man began his career as a bread salesman.  George Weston was a former baker and he started his own small business when he bought a bread route from his former employer.  By 1900 he had expanded throughout Toronto, and soon became Canada’s biggest purveyor of bread and baked goods.  In 1924 Garfield Weston continued in his father’s footsteps and took over the President position at George Weston.  Over the coming turbulent decades he managed to exponentially expand his father’s original business until a multinational food empire with assets around the world.  The third generation of Westons took over in 1970 as Galen Weston took the helm, and integrated the company’s second major wing, Loblaw Companies Limited (L).  George Weston Ltd (WN) has acquired many different organizations in its many of decades in the industry, and is now one of the largest publically traded entities in Canada.

 

George Weston Bakeries IncThe company is essentially divided into two segments.  Weston foods and its subsidiaries carries out the more traditional baking and frozen goods operations that George Weston (WN) has traditionally been known for.  The other major segment – Loblaws – is a large publically traded company in its own right (Weston owns a controlling share at about 63%).  They are the biggest food distributor in Canada in addition to providing numerous other services (general merchandise, financial products, etc) to their clientele.

 

George Weston’s (WN) vision is focused on three main principles: growth, flexibility and innovation.  The company, “Seeks long-term, stable growth in our operating segments, while accepting prudent operating risks through continuous capital investment.  Our goal is to provide sustainable returns to our shareholders over the long term through a combination of common share price appreciation and dividends.”  While this vision is somewhat generic, it is still reassuring to dividend-conscious investors to see the company’s commitment to putting profits back into their pockets.

 

Recently George Weston (WN) stated that its second-quarter profits were up almost 23% from 2010.  The company reported a profit of about a $157 million, or $1.13 per share (up from $128 million last year).  Sales totalled an astounding $7.5 billion for the international foods giant.  With input costs expected to rise along with food prices around the world, Weston reported that Canadians and much of the world would have to deal with price increases of 5-7% in the coming year.

 

Investors looking for an extremely large and well-diversified way to get exposure to the Canadian Foods market should look hard at George Weston Ltd (WN).  The company is recently trading at around $67 per share.  It has been a fairly volatile stock over the past year with a 52-week high of nearly $86 and a 52-week low of about $64.  Weston also has a massive market capitalization of over $8.5 billion.  At it’s currently price, many analysts have the stock rated as a buy, but with a fairly expensive price-to-earnings ratio of 18.5 I’m not quite sold.  The annual dividend is $1.44 which gives George Weston Ltd (WN) a dividend yield of 2.2%.

 

George Weston Ltd (WN) Dividend Stock Graph:

TSE WN

George Weston Ltd (WN) Dividend Stock Metrics:

TickerNamePriceDividend YieldPayout RatioDEBT_TO_MKT_CAPDividend Growth 5 yearsDividend Growth 1 years
WNGeorge Weston Ltd71.032.03289.980.570666144.8662538.0214

Premium Brands Holdings Corporation (PBH)

The Premium Brands Holdings Corporation (PBH) is my pick for best investment in the Canadian food and agricultural sector.  The company (like many in the dividend-leader field) switched over from an income fund structure in July of 2009 in advance of the 2010 deadline for the new taxation rules for income trusts.  Basically, this means that the previous tax advantages that were enjoyed by income trusts, and enabled them to pay larger distributions to their stakeholders were nullified.  The corporation has an incredible portfolio of agricultural/food manufacturing and distribution facilities across Canada and into the USA.  They employ about 1,650 people.  The company’s mission is, “To build a great food company through the acquisition and development of speciality branded food businesses and unique proprietary distribution networks.”

 

Premium Brand HoldingsTo understand the corporate structure of Premium Brands, an investor must first be familiar with the concept of a holding company.  The famous holding company is Berkshire Hathaway (BRK) of Warren Buffet fame.  The idea is that an initial company decides to invest its profits in buying up shares (often controlling shares) in various other companies; thus, the company’s overall performance and profits are determined by the efficiency of the companies that it owns parts of.  Premium Brands Holdings Corp (PBH) owns parts of many different successful food and agricultural companies from around the world, but mostly based out of Canada.  Some of the more popular holdings of the company include: Centennial Foodservice, B&C Foods, Direct Plus, Harlan Fairbanks, Kids Eat, Hempler’s, McSweeny’s, Quality Fast Foods, SK Food Group, Made Right, and MultiNational Foods.

 

Premium’s most recent acquisition was announced recently and it has decided to purchase the entire assets of Piller Sausages and Delicatessens Limited (more commonly known by its brand name “Piller’s”).  Piller’s is one of Canada’s largest producers of European meats.  They have about 600 employees and their annual sales are over $170 million.  The paperwork that is needed for the Canadian Competition Bureau is all that is left for the deal to be completed.  The acquisition allows Premium Brands Holdings (PBH) to claim that it holds two major meat retailers in Piller’s and Grimm’s that cover the vast majority of Canada in terms of their respectful regional dominance.  Wilhelm Huber, a co-founder of Piller’s stated that, “We are proud of the business we have built over the last 54 year but wanted to find a partner to help take Piller’s to the next stage in its development.”  The purchase price is estimated at about $73 million dollars and almost 2 million shares of Premium Brand Holdings.

 

Premium (PBH) is one of the most diversified companies within its sector in all of North America.  Their management team has proved to be very adept at consistently  recognizing profitable acquisition opportunities to add to the company’s portfolio.  The 7.3% dividend yield is absolutely un-paralleled within the sector, and represents a great value for any investor, let alone one that is focused on income-producing stocks.  Barring any major management changes, I cannot foresee an economic environment that Premium does not continue to thrive in.  Nearly every expert in the market today has either a, “buy” or “strong buy” recommendation for the stock.

 

 

Premium Brands Holdings Corporation (PBH) Dividend Stock Graph:

TSE PBH

Premium Brands Holdings Corporation (PBH) Dividend Metrics:

TickerNamePriceDividend YieldPayout RatioDEBT_TO_MKT_CAPDividend Growth 5 yearsDividend Growth 1 years
PBHPremium Brands Holdings Corp16.557.11129.350.71486615.5469159.090912

Metro Incorporated (MRU/A)

Metro Incorporated (MRU/A) began sixty years ago as a Montreal grocery chain.  The company started when several independent grocery retailers got together and decided to form a co-op-esque type of agreement that would allow them to cut their purchase costs and compete with the larger retailers in their respective markets.  Through several decades of acquisitions and mergers, Metro is now the third largest company in the Canadian food industry (one of his biggest competitor being Loblaw (L)).  It is now the biggest grocer in both Quebec and Ontario and has over 35% market share between the two provinces with over 160 stores in Ontario alone.  They also employ over 65,000 people.  By constantly looking for advantageous additions to their growing food empire, Metro is expanding at a respectable rate.  They most recently shored up their market share in Quebec by purchasing an additional 15 stores in La Belle Province.  Metro (MRU/A) is known for its strong social activist commitments as well.  It’s most recent venture is known as the “Green Apply School Program” that will help schools by donating over a million dollars worth of fresh produce to primary and secondary schools in Quebec this academic year.

 

Logo-metroThe biggest news for Metro (MRU/A) in recent years was the company’s large purchase of the The Great Atlantic and Pacific Tea Company, including its subsidiary, A&P Luxembourg S.  The price tag was not cheap at $1.7 billion dollars, but Metro was able to pay over $1 billion of the sale in cash, and the rest of the payment consisted of treasury shares in Metro (MRU/A).  The Quebec-based company had been sitting on a pile of cash thanks to one of the largest profit margins within the industry.  Their second-quarter profits were up 3.7% to $83.3 million.  The only place that Metro hasn’t seen a bump in profits is its over-the-counter drug sales.  Stronger competition within the sector has been responsible for the lower prices. As for obstacles on the horizon, the development of Wal-Mart’s expansion into grocery items has some food retailers, including Metro (MRU/A), nervously eyeing their market share.  Eric La Flache, the President of Metro Inc. claimed that, “There has been some impact on us but so far it’s been modest.”

 

Metro is currently trading close to $46 a share, and that is right in the middle of its 52 week range.  At this price I am not too excited about the grocery giant.  The company is massive with a market capitalization of nearly $5 billion.  It has a respectable price-to-earnings ration of 12.4, and its yearly dividend of $0.77 gives Metro (MRU/A) a nice dividend ration of 1.7%.  There is definitely wrong with the stock, I just believe that it is a fairly regional play, and that there are much better opportunities in the Canadian foods sector in terms of both dividend-producers and growth opportunities.

 

Metro Incorporated (MRU/A) Dividend Stock Graph:

TSE MRU

Metro Incorporated (MRU/A) Dividend Metrics:

TickerNamePriceDividend YieldPayout RatioDEBT_TO_MKT_CAPDividend Growth 5 yearsDividend Growth 1 years
MRU/AMetro Inc47.151.6317.660.212906616.898253.64808

Loblaw (L)

Loblaw (L) is a name that is familiar to the vast majority of Canadians since they see it on their weekly grocery shopping trip.  They are by far Canada’s largest food distributor.  They also have substantial market share in the fields of financial products/services, over-the-counter drugstore sales, and general merchandise.  They are a massive employer in the Canadian market with 136,000 full- and part-time employees across Canada.  Loblaw is “Committed to providing Canadians with a one-step destination in meeting their food and household needs.”  They have expanded from their purely food-distribution beginnings, into original product-line creation including such noteworthy brands as President’s Choice (PC), No Name, and Joe Fresh.  Loblaw (L) management has pursued a defining strategy based on three main focuses: Simplify, Innovate, and Grow.  Since Loblaw is a branch of the large foods-conglomerate George Weston (WN), it is committed to the same investor-friendly strategy of returning a generous amount of overall profits to shareholders.  Throughout its long and storied history Loblaw has been very active in supporting charity initiatives as diverse as diabetes treatments and helping impoverished children afford glasses

LoblawsLoblaw (L) has a storied history that dates back to the close of World War One.  In 1919 J. Milton Cork and Theodore Pringle Loblaw (aka “The Merchant Prince”) opened a grocery store in Toronto called Loblaw Groceterias.  They were one of the first locations to use self-serve shopping to achieve lower overhead costs and consequently cut prices for shoppers.  Within the next decade the original two owners were joined by another Toronto businessman named Charles Shields and expanded to over 70 locations.  Before World War Two, Loblaw (L) had grown and also vertically integrated.  It now had its own electric tram railway, and the infrastructure needed to produce vast quantities of food to sell in its stores.  In 1947 Garfield Weston (the son of George Weston) the President of George Weston Limited (WN) bought out co-founder J. Miltion Cork, and soon after acquired a controlling interest in Loblaw Groceterias Co. Limited.  Loblaw soon began its now storied history of developing original brands that boosted their products image.  In 1998 they began to expand into the financial service portion of their business, offering stiff competition to big banks, and ultimate convenience to customers.

Loblaw (L) offers investors much the same package as its parent company George Weston does.  They are a mature company that will likely pay a substantial dividend for the foreseeable future; however, they are in the industry of food retail and distribution which has razor-thin margins of profit.  I believe that it offers fine exposure to the Canadian food and retail market, and a decent dividend, but it is not a stock I would highlight.  It is currently trading at around $36 per share.  Loblaw has a huge market capitalization of over $10 billion dollars.  Its current price-to-earnings ratio is a respectable 14.25, and its annual dividend of $0.84 gives it a yield of 2.3%.

 

 

Loblaw (L) Dividend Stock Graph:

TSE L

Loblaw (L) Dividend Stock Metrics:

TickerNamePriceDividend YieldPayout RatioDEBT_TO_MKT_CAPDividend Growth 5 yearsDividend Growth 1 years
LLoblaw Cos Ltd41.022.0534.360.410437400

 

 

Alliance Grain Traders (AGT)

Alliance Grain Traders (AGT) is a multinational conglomerate that has assets throughout many different agricultural regions.  The current version of the organization was founded in 2007 when the Agtech Income Fund purchased Saskcan Pulse Trading.  The fund was re-named the Alliance Grain Traders Income Fund and instantly became a force within the agricultural pulse trading community.  They year 2009 was a busy one for the company.  They saw the writing on the wall when it came to tax code changes that would influence income funds across many sectors.  AGT got out in front of the ball, and incorporated into a purely dividend-paying corporation.  They also took part in a massive acquisition of the The Arbel Group.  This essentially allowed Alliance Grain Traders (AGT) to vertically integrate many of their services.  They now hold large market share in the processing, trade, and export of speciality crops.  As part of the Arbel acquisition, Alliance also bought the rights to a large pasta company in Turkey that sells their product across around the globe.  The company now boasts that it is the largest lentil and pea splitting company in the world.  They own 27 different sites across Canada, the USA, Turkey, China and Australia, and ship to almost 90 countries around the globe.

 

Alliance Grain TradersThe Alliance Grain Traders (AGT) has the following mission statement, “To provide a clean and quality product with reliable and timely shipments, competitive pricing and flexible delivery arrangements for bulk, bagged and packed pulses and foodstuffs. Our commitment to supply guaranteed quality to our clients is ensured through comprehensive production, execution and quality control.” The company employs over 400 full time workers around the world.  The core of the company is primarily its various pea and bean crops (yellow split peas, red split peas, kabuli split peas, black beans, kidney beans and navy beans just to name a few); however, it is diversified with other agricultural crops, and is constantly on the lookout for additional acquisitions that would provide added value for their shareholders.

 

Alliance Grain Traders (AGT) recently released to the press that it has acquired the complete asset portfolio of Canz Commodities.  It is a chickpea producer located in Narrabri, Australia (about 500 km from Sydney).  The assets included processing plants, real estate, storage equipment and various other chickpea handling materials.  The initial price tag, plus the cost of budgeted improvements will likely run the company about $8 million (CAD).  Canz was purchased through a subsidiary of Alliance called Australia Milling Group PTY Ltd.  Murad Al-Katib, President and CEO of AGT, had this to say, “As we have previously stated as one of our strategies, AGT continues working to grow our chickpea, faba bean, bean and lentil platforms globally. Australia is becoming a world class pulses producer and any major pulse company must look to Australia as a key origin for products and processing. We believe this acquisition assists us in executing our growth plans and building a sustainable value-added pulses business in Australia and worldwide.”

 

With the changing demographics of the world shifting to cultures that consume much of the pea and bean market, the future looks bright for Alliance Grain Traders (AGT).  The stock is trading at around $23 at moment.  It has an annual dividend of $.60, giving it a dividend yield of about 2.5%.  While the company looks to have solid growth prospects, I believe that there are more mature companies within the Canadian agricultural sector which are a better fit for dividend investors.

 

Alliance Grain Traders (AGT) Dividend Stock Graph:

TSE AGT

Alliance Grain Traders (AGT) Dividend Stock Metrics:

TickerNamePriceDividend YieldPayout RatioDEBT_TO_MKT_CAPDividend Growth 5 yearsDividend Growth 1 years
AGTAlliance Grain Traders Inc22.522.419.950.49101131.00112-0.1841009

 

 

Canada Bread (CBY)

Canada Bread (CBY) is basically a subsidiary of Maple Leaf Foods Inc (MFI) (but MFI doesn’t support Canadian Dividend Stock minimum dividend requirements), which owns 90% of the company.  They are one of the leading makers of frozen baked goods in North America.  They specialize in products such as speciality pasta, pasta sauces, partially baked breads and bagels, tortillas, and countless fresh breads and breakfast pastries. You may recognize some of their brand names including Oliveri, Ben’s, POM, Dempster’s, and Olafson’s.  Canada Bread has over 8,000 employees in Canada, the United Kingdom, and the USA.

 

Canada Bread LogoThe company’s most recent financial reports show revenues staying fairly neutral at $406 million (compared to $402 million in 2010).  Canada Bread (CBY) launched a fresh sandwich product this year which hurt bottom lines somewhat, but this was offset by the price increases that the company put forth in the first part of 2011.  Adjusted earnings per share for the quarter increased 14%, from $30.7 million to $35 million.  This was mainly due to reduced promotional costs, as the price increases noted above were offset by the costs of input materials.

 

CBY recently announced that it will close the facility located in Delta, British Columbia, near the end of 2011.  The location primarily produced fresh baked goods including pantry breads, tortillas, and rolls.  Canada Bread Inc (CBY) put out a press release stating that the facility was closed, “In order to increase efficiencies and provide new capacity at another bakery for its fast-growing tortilla category.”  Speculation is that the company will invest $11 million more at its Edmonton, Alberta location in order take up the slack.  Barry McLean, President of the Fresh Bakery had this to say, “We regret the impact on our skilled and dedicated employees and we will provide resources and support to ease their transition to new employment.”  The facility had employed about 155 employees who have been offered various termination packages.

 

While certain divisions of Canada Bread (CBY) have seen decent growth the last few years, and bread products are the type of consumer staple that do well in the economic environment, I just don’t see much growth potential for the company.  I do appreciate the company’s efforts to streamline operations for the sake of efficiency, but I don’t think it will be enough to generate much value for investors at its current price point.  It is currently trading around $45 per share, and has a relatively high price-to-earnings ratio at 23.66.  Its annual dividend of $.80 gives it a dividend yield of 1.8%.  While this is respectable, I think there are better dividend options out there on the TSX.  Investors looking for exposure to the Canadian food sector might be better served looking at Canada Bread’s parent company in Maple Leaf foods.

 

Canada Bread (CBY) Dividend Stock Graph:

TSE CBY

Canada Bread (CBY) Dividend Stock Metrics:

TickerNamePriceDividend YieldPayout RatioDEBT_TO_MKT_CAPDividend Growth 5 yearsDividend Growth 1 years
CBYCanada Bread Co Ltd47.981.67100.0100922300