Seth Klarman is the Chief Executive Officer and Portfolio Manager of The Baupost Group, an investment management firm with an $8 billion stock portfolio. Seth Klarman is a well-known value investor, with a fondness for high dividend yields. Baupost’s portfolio includes many cheap, high-yield dividend stocks.

One of the biggest holdings in Seth Klarman’s portfolio is Syngenta (SYT).

As of December 31, 2016, Baupost held roughly 745,000 shares of Syngenta, worth approximately $60 million.

Syngenta has an uneven dividend history. Since it is based outside the U.S., its dividend fluctuates, in part due to foreign exchange translations.

As a result, it is not a Dividend Achiever, a group of 271 stocks with 10+ years of consecutive dividend increases.

You can see the full Dividend Achievers List here.

This article will discuss Syngenta’s business model, and why the stock could be an attractive value.

Business Overview

Syngenta operates in the agriculture industry. The company provides products that help farmers around the world increase crop productivity. Some of Syngenta’s major product lines include herbicides, fungicides, insecticides, seeds, and lawn and garden products. The company employs 28,000 people and operates in over 90 countries across the world. 2016 was a challenging year for the company overall, but there were some bright spots.

Source: 2016 Earnings Presentation, page 7

Total sales fell 4.6% in 2016, to $12.8 billion. To be sure, a significant portion of the decline was attributed to unfavorable foreign exchange fluctuations.

With a heavy international presence, Syngenta is highly exposed to the strong U.S. dollar, which erodes revenue generated overseas.

Currency alone reduced 2016 revenue by $344 million.

In addition, weakness in Latin America, due to a change in sales terms in Brazil, reduced revenue by another $473 million.

Were it not for these items, Syngenta would have posted a revenue increase in 2016.

This is a challenging time to be in the agriculture industry, due to falling prices of agriculture commodities. This has suppressed global farm incomes, which in turn results in lower demand for agricultural products.

However, the long-term fundamentals of the agriculture industry remain very positive.

Growth Prospects

While Syngenta struggled last year, it has a long runway of growth ahead of it.

The reason is because of a fundamental challenge facing the agriculture industry: the rising global population.

According to Syngenta, the world’s population is expected to reach 9 billion by 2050, representing growth of 2 billion people in the next three decades.

Another catalyst for future earnings growth is cost cuts. Syngenta is in the process of a major cost-saving program called Accelerating Operational Leverage, which calls for renewed focus on cost discipline.

Source: 2016 Earnings Presentation, page 10

Last year, the Accelerating Operational Leverage program generated $320 million in cost savings.

Syngenta has expanded its operating profit margins over the past five years, despite the macro-economic headwinds facing the global agriculture industry.

This is helping the company maintain positive free cash flow, even though sales are declining. In fact, free cash flow jumped 75% last year, to $1.4 billion.

A good example of this strategy at work is Syngenta’s Latin America segment, which saw its revenue decline 3% last year excluding the change in Brazil sales terms.

Source: 2016 Earnings Presentation, page 13

This decline was offset by raising prices and cost discipline, which resulted in operating profit increasing by 7.1% for the year in Latin America.

As a result, Latin America segment operating margin expanded by 460 basis points last year.

Overall, Syngenta’s earnings-per-share fell just 4.2% in 2016.

Earnings-per-share stand a good chance of returning to growth in 2017 and beyond, thanks to new products.

Source: 2016 Earnings Presentation, page 19

Syngenta is making significant investment in research and development, which will help it capitalize on any potential recovery in the agriculture industry.

The company allocated $1.3 billion to R&D last year alone.

This investment should pay off, as the company expects new products—those launched within the last five years—collectively hold more than $2.9 billion of new revenue potential.

Dividend Analysis

Syngenta’s most recent annual dividend was in the amount of $1.9305 per share. Based on Syngenta’s recent share price, the stock has a current dividend yield of approximately 2.2%.

This is only slightly higher than the average dividend yield in the S&P 500 Index, which is roughly 2%.

Investors looking for high levels of income right now, may not view Syngenta stock as very appealing.

It is unlikely the company will raise its dividend in 2017, due to the fundamental pressures facing the agriculture industry.

Moreover, the strength of the U.S. dollar continues to suppress dividend payouts of international companies.

That said, Syngenta could be an attractive pick for long-term, dividend growth investors.

As previously mentioned, rising global populations are likely to result in much higher demand for food. Since there is only so much available farmland around the world, this will require solutions designed to increase crop yields.

This is exactly what Syngenta does, meaning its long-term fundamentals (and dividend growth prospects) remain quite strong.

And, Syngenta’s 2016 dividend payout represented just 11% of its earnings-per-share for the year. Once the industry conditions improve, Syngenta should have little trouble raising its dividend.

Syngenta’s most attractive feature could be its valuation. The shares are very cheap, with a price-to-earnings ratio of just 5.1.

To compare, consider that the S&P 500 Index has an average price-to-earnings ratio of 26.

This indicates the stock is considerably undervalued.

Such a low valuation multiple indicates the market believes the company’s earnings are likely to decline significantly going forward.

However, Syngenta’s earnings-per-share fell only slightly last year.

And, its cost-cutting measures and new products, give the company a good chance of returning to earnings growth in 2017.

Final Thoughts

Times are tough for Syngenta, but its struggles will likely be short-term. The downturn in the agriculture industry is weighing on all industry operators indiscriminately.

Meanwhile, Syngenta is operating efficiently, and has significantly increased profit margins through cost cuts.

And, it has a large pipeline of new products.

These initiatives position the company to capitalize on the next agricultural boom, whenever it comes. Given the long-term tailwind of rising global populations, the recovery is likely to come sooner rather than later.