Nutrien (TSX:NTR) stock has kicked off 2025 with impressive momentum, gaining over 13% year-to-date and showing signs of potentially bottoming out after reaching 52-week lows in late December 2024. A recent agricultural sector report amplifies Nutrien stock’s recovery from multi-year lows. However, new upside momentum may indicate a limited window for passive income-oriented investors to buy NTR stock before its well-covered 4.2% dividend yield shrinks. For a dividend investor, the key question is whether the world’s largest fertilizer producer offers a sustainable income stream.
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Nutrien stock’s compelling dividend story
Several factors make Nutrien’s dividend story compelling. The company pays a quarterly dividend of US$0.54 per share, which becomes increasingly attractive to Canadian investors as the Canadian dollar (CAD) weakens against the United States Dollar (USD).
As the global leader in potash production and a key crop inputs retailer in North America, Nutrien’s market position provides a strong foundation for its cash flow generation and dividend growth program. Nutrien has raised its dividend each year for four consecutive years since 2021. Management appears focused on using the dividend, as well as share repurchases, to augment shareholder returns on a volatile agricultural stock.
Recent agricultural market developments could support Nutrien’s business outlook for 2025. The January 2025 World Agricultural Supply and Demand Estimates (WASDE) report from the U.S. Department of Agriculture (USDA) revealed lower U.S. corn production estimates, down to 14.9 billion bushels, with producer prices rising 3.7%. Global trends show declining stocks for corn and soybeans, potentially leading to higher crop prices. This market dynamic could boost farmers’ cash flows and their ability to purchase more crop inputs – playing directly into Nutrien’s core business as North America’s largest agricultural retailer.
Dividend sustainability analysis
When evaluating dividend sustainability, looking beyond the conventional earnings payout ratio is crucial. While Nutrien stock’s earnings payout rate of 145% might raise eyebrows, this figure was significantly impacted by non-recurring asset writedowns in 2024, particularly related to their Brazil expansion strategy.
The more telling metric is the free cash flow payout ratio, which stands at a healthy 43% over the past 12 months. This indicates that Nutrien’s dividend is well-covered by internally generated cash, leaving ample room for both dividend growth and capital expenditure needs. The company has demonstrated its commitment to shareholder returns by raising dividends annually since 2021, including a modest increase of under 2% for 2024.
Investment considerations
Nutrien presents an interesting value proposition with an enterprise-value-to-earnings before interest, tax, depreciation, and amortization (EV/EBITDA) multiple of 9.9, trading below the industry average of 11.4. This suggests potential upside, particularly if the company can capitalize on improving agricultural market conditions.
However, investors should consider several positive catalysts including Nutrien’s strong market position as the world’s largest fertilizer producer, favourable agricultural market conditions with rising crop prices in 2025, a well-covered dividend backed by strong free cash flow, and a potential currency advantage for Canadian investors receiving USD dividends
Risk factors to consider include the company’s recent history of asset writedowns affecting earnings, Nutrien’s need to demonstrate sustainable earnings growth, and persistent market volatility in the agricultural sector.
Investor takeaway
Agriculture sector stocks may enjoy positive momentum during the 2025 marketing season as stocks dwindle for some critical commodities. With Nutrien’s fourth-quarter earnings announcement approaching in February, investors will be watching for signs of operational improvement and potentially another dividend increase.
Nutrien stock’s 4.2% dividend yield appears sustainable for income-focused investors, as it is backed by increasingly solid fundamentals. The combination of potential price appreciation from current levels and a well-covered dividend makes Nutrien an attractive long-term investment option for those seeking both passive income and some long-term growth potential in their portfolios as farmers feed a growing world population.
