Growth opportunity in farmland

When you say someone “bought the farm,” that’s usually bad news — but now it sounds like a wise investment decision, observes Sean Brodrickspecialist in long-term growth stocks and publisher of Wealth Megatrends.

No matter where we are in the cycles – whether an economy is in recession or booming – or whether the world is at war or at peace, people still need to eat. As such, agriculture and animal husbandry are generally good investments. This is all the more true as the world’s population continues to increase. And now, with inflation driving up food prices, it may be one of the best investments.

However, buying a farm is not feasible for most investors. This requires a boatload of capital. And the costs of Operating one – whether owned or rented – matters…not to mention the time it takes. Fortunately, investors have other ways to gain exposure to the sector than pouring money into a few hundred acres in Nebraska, several tractors and a harvester.

As an investor, the closest you can get to owning a farm — without actually doing it — is investing in a farmland-centric REIT. These REITs buy farmland and then lease it to farmers. Farmland REITs allow you to have stakes in multiple farms, they offer greater liquidity than owning physical farmland, and they obviously require a lot less capital.

The largest farmland REIT in the United States is Gladstone Land (LAND) formed in 1997 and owns more than 150 farms, primarily fruit and produce, in 14 states. LAND’s total market capitalization is close to $1 billion, making it the largest farmland REIT in the world.

LAND currently offers a dividend yield of 1.93%. Daily market volume is also decent, at 337,000 shares per day. Why is volume important? Because being able to sell at a good price is just as important as buying at a good price. And the higher the volume, the smaller the gap between supply and demand.

Another choice is Agricultural partners (REIT). It has a market capitalization of $532 million and an average volume of 344,000 shares per day. Its dividend yield is 1.69%. Here is a chart comparing LAND and FPI to their benchmark, the Vanguard Real Estate Index Fund ETF Equity (VNQ).

You can see that LAND beats them both by a country mile. And FPI underperforms VNQ, which shows that not all agricultural investments are good. To be on the safe side, always do your own due diligence before buying anything. But if agricultural commodities rise, farmland prices are likely to follow.

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