3 Dividend Stocks for Rising Commodities Prices

Early in 2022, the world was rocked with the news of Russia invading Ukraine. The war has taken a huge toll on infrastructure in the region, and of course, the health and safety of millions of people. In the world of investing, wars are just one reason the prices of financial assets and commodities can move, and here we'll take a look at why commodities are rising in the wake of Russia's invasion, what it means for investors, and three examples of dividend-paying agricultural stocks that could benefit from commodities inflation. Commodities Are on the Rise Commodities are a wide and diverse group, but in general, commodities are used in production of food, energy, and any other physical product. That makes them incredibly vital, and changes to demand or supply can take a big toll on prices in one direction or the other. Energy commodities, for instance, tend to fall during recessionary periods when demand falls, but rise in boom times when demand is high. Agricultural commodities take into account demand in this way as well, but weather can be a big determinant of the supply of any particular agricultural commodity. In addition, in the case of the war in Ukraine, supply is being shocked not from weather, but from Russia being sanctioned across much of the world. Russia is a big producer of many commodities, including wheat and energy products. During a time when inflation was already on the rise across the world, the sudden removal of supply of oil, natural gas, and agricultural commodities from some of the world's markets has driven prices up very quickly in some cases. For instance, wheat is up almost 60% since the invasion began, which was only about two months ago. Oil is up over 10%, while natural gas is up over 50%. There are other impacts that have occurred because of sudden, sizable supply imbalances from the invasion, but the point is that traders in these markets have been subject to wild price movements, with most of that action being to the upside. This has unpleasant impacts on businesses that use commodities for production, but also for consumers, as the price of inputs rising means the price of finished goods must rise as well. Now, let's take a look at three examples of dividend-paying agricultural stocks we like in this environment of rising inflation. Three Dividend-Paying Agricultural Stocks Our first stock is The Toro Company , which is a company that designs, manufactures, and distributes several lines of professional and residential equipment globally. Toro manufactures a wide variety of landscaping, renovation, construction, ice and snow removal, spreader, and other types of equipment and related vehicles. Toro was founded in 1914, generates about $4.5 billion in annual revenue, and trades with a market capitalization of $8.7 billion. Toro's current dividend yield is 1.4%, which is in line with the broader market. However, the company's dividend has been raised for 12 consecutive years, and in the past decade, Toro's average annual increase is more than 18%. Toro stands to benefit from the increased demand of agricultural commodities, as well as producers outside of Russia that may look to boost production to soak up the supply that is no longer available in the market due to sanctions. Our next stock is Scotts-Miracle Gro , which manufactures, markets, and sells a wide variety of lawn and garden products globally. Scotts provides an enormous array of products that are all aimed at helping consumers and professionals produce better yields from the plants and commodities they grow. Scotts was founded in 1868, produces about $4.7 billion in annual revenue, and trades today with a market capitalization of $5.8 billion. Like Toro, Scotts has a 12-year dividend increase streak, with an 8% annual average dividend raise in the past decade. Scotts-Miracle Gro's current dividend yield is almost double that of the S&P 500, however, at 2.5%. We think Scotts-Miracle Gro could see increased demand for its products from farmers around the world that are looking to take advantage of lower supply and higher demand, which is leading to inflation in those impacted commodities. Scotts is a leader in fertilizers and other growing aids and has the scale and brand reputation to take advantage. Our third stock is The Andersons , a company that manufactures plant nutrients, trades in grains and other commodities, as well as ethanol and other renewables. The company was founded in 1947, generates over $13 billion in annual revenue, and has a $1.8 billion market capitalization. The Andersons has an impressive 26-year dividend increase streak, and its average annual increase in the past 10 years is almost 7%. The current yield is about on par with the S&P 500 at 1.4%. We like Andersons because it too has exposure to farmers and producers looking to increase yields, as well as the actual price movement of grains and other agricultural commodities. We like Andersons for its diversification and think it has more than one way to see benefit from the current inflationary environment in agricultural commodities. Final Thoughts While the war in Ukraine has taken a heavy humanitarian toll, it has also produced some unforeseen consequences in the world's economy. As sanctions and supply disruptions from the war have seen supply removed from the market for many commodities, price inflation has resulted. While that hurts consumers and others that buy the commodities, it does have a silver lining for those that help produce them. The three stocks we've identified here -- Toro, Scotts-Miracle Gro, and The Andersons -- have their own unique way of benefiting from the increased production of certain commodities that is likely to result from end-market inflation. All three help producers grow more effectively, and as producers look to build their supply on rising prices, all three stand to benefit. In addition, all three have respectable dividend increase streaks, yields that are at least as good as the S&P 500, and very strong dividend growth histories. We think they offer good entry points for investors looking to gain exposure to agricultural commodity inflation.

3 Dividend Stocks for Rising Commodities Prices

These names have their own unique way of benefiting from the increased production of certain commodities likely to result from end-market inflation.

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