2 Top TSX Commodity Stocks to Buy in August

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A tractor harvests lentils.

Written by Aditya Raghunath at The Motley Fool Canada

Inflation shows no signs of slowing down. Commodity prices have already surged this year, and commodity stocks have largely benefited from an inflationary environment. In fact, commodity stocks have easily outperformed the TSX this year.

If inflation does not ease in August, these two commodity stocks would make excellent buys. Both stocks discussed here have generated impressive returns for investors over the past 12 months and also offer a tasty dividend yield.

Nutrien

Nutrien (TSX:NTR)(NYSE:NTR) Stocks have fallen more than 24% since April of this year, so why is it finding a place on this list? There are two major factors. The first is that despite the fall of the last four months, the stock is still up more than 20% in 2022. In comparison, the TSX has fallen almost 7.3% since the start of the year.

The second reason is that Nutrien is one of the biggest players in the global crop nutrient industry. With geopolitical tensions rising due to the Russian-Ukrainian conflict, Nutrien’s importance on the world stage is set to skyrocket.

Nutrien has some advantages. While Russia and Ukraine have agreed to export food grains and other crops around the world, several countries may be looking for long-term solutions. This trend should benefit Nutrien, allowing the company to thrive through economic cycles.

When Nutrien releases Q2 2022 results on August 3, analysts expect the company to report adjusted earnings of $7.39 per share, a 183.7% year-over-year increase. . Meanwhile, revenue for the quarter is expected to rise nearly 57% to $19.1 billion, following a 32.5% increase in revenue in 2021.

Nutrien shares are priced at $109.62 and Bay Street expects the stock to touch $155 over the next 12 months, indicating 41% upside potential. The stock also pays a forward dividend yield of 2.3%, providing you with a stable stream of dividend income.

Freehold royalties

Freehold royalties (TSX:FRU), an oil and gas player, is one of the top dividend payers on the TSX. It collects royalties from companies that produce energy on land owned by Freehold Royalties.

FRU stock offers a forward dividend yield of 6.61% and a payout ratio of just 52%, indicating that it may increase dividend payouts in the future. The company has increased its dividends for six consecutive quarters and payouts have increased by 9.9% per year for the past five years.

Freehold has used the recent spike in energy prices to its advantage by reducing its long-term debt by approximately $41 million. In the first quarter of 2022, the company reported record cash flow from operations, up 122% to $71.9 million from the prior year period. Along with debt reduction, Freehold is easily on track to maintain its goal of net debt levels below 1x operating funds.

Freehold is a great stock to buy for investors looking for regular passive income. With a recession looming and inflation still high, getting regular cash payments into your account is always a good idea, and Freehold is a good bet with its strong and growing operating cash flow. Royalty acquisitions, including 2021 investments in U.S. royalty assets in the producing Eagle Ford, Permian and Haynesville shale plays, are expected to continue to drive drilling and production activity.

Freehold stock closed at $14.52 and the stock’s average target price is $20.63, representing a potential upside of over 42%. When you add the dividend payout, you’re looking at a potential gain of almost 50%. Freehold Royalties remains one of the most attractive players in the commodities sector, despite rising 66% last year.

The post 2 Top TSX Commodities Stocks to Buy in August appeared first on The Motley Fool Canada.

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Foolish contributor Aditya Raghunath has no position on the stocks mentioned. The Motley Fool recommends FREEHOLD ROYALTIES LTD. and Nutrien Ltd.

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