My 3 Favorite Canadian Stocks For RRSP Season

During the month of February, several Canadians will make an RRSP contribution in order to benefit from a tax deduction from their income. For this reason, you will be among many to have fresh cash in your account and wonder where to invest your money.

Using the 7 dividend growth investing principles, I’ve identified three companies offering growth opportunities for 2017.

Agrium (AGU) & Potash (POT)

Source: Ycharts

Investment Thesis

I’ve included those two companies as the same entity since in the upcoming months, Agrium and Potash will proceed with a merger of equals. Potash corporation would own 52% of the new entity and Agrium would own the remaining 48%. I’ve always preferred AGU over POT for the simple reason that its business model is less volatile. POT is highly dependent of volatile commodities market as it is the world’s largest fertilizer producer. AGU sells fertilizer products to over 1,500 retail and wholesale locations across Canada and the United States. Agrium is the leader in the U.S. market with 17% market share where the second position shows 7% (source Motley Fool). This company is also evolving in a highly-fragmented market leading to more growth-by-acquisitions opportunities in the future.

How both company will benefit to each other? Well, Potash is in a relatively uncomfortable situation with the ever-decreasing price of Potash, forcing POT to cut its dividends twice in 2016. Adding more diversification and stability to its revenue source is the primary goal. On the other hand, Agrium will benefit from a vertical integration leading to a better control over its costs. As AGU already shows growth vectors through potential acquisitions, the company will be able to benefit from stronger cash flow due to the synergy created with POT.

The synergy created by this merger will create a giant in the fertilizer industry. In the event of commodities price bounce back, the new AGU-POT will be in the best position to benefit from this situation.

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Disclaimer: I hold AGU, EMA, TU in my Dividend Stocks Rock ...

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