Despite strong gains and a high dividend yield, Rogers Sugar seeks to offset the many risks in its industry with the purchase of a maple syrup firm.

A member of Pat McKeough’s Inner Circle recently had a questions about a “good, albeit boring” dividend stock. This company’s products, labelled as “Lantic” in central and eastern Canada, and “Rogers” in the west, include a variety of sugars and syrups. The company posted strong revenue and earnings gains in the most recent quarter and its dividend yields a high 6.4%.

Still, Pat underlines the many hidden risks in the industry as a whole, including high energy costs, weather conditions and labour settlements. One positive for Rogers Sugar, a Canadian holding company, could be the acquisition of a maple syrup bottler than should offset some of the company’s risk.

Q: Pat, your thoughts, please, on Rogers Sugar (RSI-T), as a good, albeit boring, dividend yield stock. Thanks.

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A: ROGERS SUGAR INC. (symbol RSI on Toronto; www.lanticrogers.com) owns 100% of Lantic Inc., which makes it the leading supplier of refined sugar in Canada.

Lantic operates cane sugar refineries in Quebec (including Montreal) and Vancouver. It also manages the only Canadian sugar-beet processing facility, in Taber, Alberta. Lantic’s sugar products are marketed under the “Lantic” trademark in central and eastern Canada, and the “Rogers” trademark in Western Canada. They include granulated, icing, cube, yellow and brown sugars, liquid sugars, and specialty syrups.

In the three months ended April 2, 2022, revenue rose 17.3%, to $253.34 million from $215.93 million a year earlier. As a Canadian holding company, Rogers Sugar saw higher sugar volumes and selling prices. Excluding one-time items, earnings per share gained 28.6%, to $0.09 from $0.07.

Growth stocks: $160 million maple syrup acquisition helps offset risk

Competition in the sugar industry remains high as sugar demand levels off and small competitors look to make greater inroads.

The sugar business also involves lots of extra, hidden risks that expand volatility. Rogers Sugar is vulnerable to high energy costs, weather conditions affecting sugar beet production and prices, and labour settlements with workers. World sugar markets are subject to changing government regulation and trade policies.

When most of the above conditions are favourable, Rogers Sugar can show strong profits. But when they are unfavourable, profits shrink.

Being a stable Canadian holding company, Rogers Sugar sought to offset these risks through strategic acquisitions. To provide future growth, the Canadian holding company bought L.B. Maple Treat Corporation in August 2017 for $160.2 million. That business is one of the world’s largest branded and private-label maple syrup bottling and distribution companies. As a prominent Canadian holding company, Rogers Sugar has positioned itself well in the maple syrup category. The company’s shares have a high yield of 6.4%.

In summary, Rogers Sugar Inc., a leading Canadian sugar supplier, represents an interesting case study in diversification and risk management in the food processing sector. The company, through its ownership of Lantic Inc., operates strategic refineries across Canada, with facilities in Quebec, Vancouver, and Alberta. Their product portfolio spans various sugar products marketed under the “Lantic” and “Rogers” trademarks.

The company’s recent financial performance shows promise, with a 17.3% revenue increase to $253.34 million and a 28.6% gain in earnings per share. However, the business faces several industry-specific challenges, including fluctuating energy costs, weather-dependent production, labor issues, and changing government regulations.

In a strategic move to mitigate these risks, Rogers Sugar acquired L.B. Maple Treat Corporation for $160.2 million in 2017. This acquisition represents a significant diversification into the maple syrup market, offering new growth opportunities through potential smaller acquisitions and benefiting from supply-managed stability.

While maintaining a high dividend yield of 6.4%, the company’s balanced approach to traditional sugar production and maple syrup distribution suggests a thoughtful strategy for long-term sustainability and growth in the Canadian food processing industry.

Inner Circle recommendation: Rogers Sugar is okay to hold, but only for aggressive investors.

For our recent report on a Canadian stock banking on nationwide expansion, read Canadian auto stock continues to roll out aggressive strategy.

For our advice on uncovering the best growth stocks, read 3 tips to improve your aggressive investing success.

This article was originally published in 2017 and is regularly updated.