It’s safe to say that, at one point or another, people have heard about the importance of investing in real estate. Yet farmland seems to fly under the radar.
Farmland pays you two ways: from the money you make when it goes up in price, and from rent. In other words, you can earn a steady income from rent while you wait for the value of the land to grow.
Not only that, but farmland prices have very little correlation to stocks and bonds. During the last two financial meltdowns, when the S&P 500 fell over 50%, farmland went up in price.
Historically, this makes sense.
Barton Biggs, author of Wealth, War and Wisdom, explained how farmland was one of the things that saved families in occupied France, Poland, Germany, Italy, and Holland:
An unostentatious farm, not a great estate, is probably best. Bricks and mortar real estate can be expropriated or bombed, but the land is always there. Your land can’t be plundered or shipped off to somewhere else. During World War II in most of the occupied countries, if you had a self-sufficient farm, you could hunker down on it and with luck wait out the disaster. At the very least you were supplied with food in a starving country. A working farm protected both your wealth and your life.
If you have the money, I would suggest you seek a farm 200 miles from the nearest city. Stay away from single-crop Midwest farms, as they are overvalued and subject to crop failure.
It could be you don’t have the money to buy a farm yourself. The second-best option is to own a farmland real estate investment trust (REIT). These trade like common stocks but must pay out 90% of their taxable income as dividends. It’s the poor man’s way to get into real estate. I love them.
Gladstone Land Corp (LAND)
Gladstone Land (NASDAQ: LAND) is a REIT that owns and leases farmlands across the USA. Despite a recent 45% price decline driven largely by interest rates, the current share price should be viewed as an opportunity due to potential future recovery in real estate. LAND got hit hard due to high interest rates. It stands to reason that the opposite will also be true. The share price is down from $40 to $13 over the past two years.
If the Fed starts cutting rates over the next two years this stock could easily double.
And while you are waiting LAND offers a 4.15% dividend yield paid monthly with a track record of dividend increases over 9 years.
Farmland
LAND owns 168 farms covering 112,000 acres across 15 states, valued at $1.5B, focusing on healthy food production. They employ a triple net lease model, transferring maintenance costs and taxes to tenants, ensuring steady income. Occupancy stands at an impressive 99.4%, highlighting strong property utilization though it is down slightly in the latest quarter.
In Q1 revenues declined 4.5% year-over-year to $20.25M, yet exceeded FFO estimates at $0.167 per share. The portfolio growth has stagnated since 2022, which again coincides with rising interest rates impacting profitability. Despite headwinds, LAND maintains high liquidity with $51.6M in cash, while steadily reducing long-term debt, currently at $612M.
The upshot is that LAND is a medium-term bet on lower interest rates. The share price has flatlined at long-term support which suggests that all of the sellers have sold. Overall, while facing current economic headwinds, LAND’s strategic leasing model and solid financial position offer the potential for long-term recovery and income stability. And you can pick up a nice dividend while you wait.
All the best,
Christian DeHaemer
Outsiderclub.com
https://finance.yahoo.com/news/bill-gates-finally-explains-why-194910939.html
https://www.outsiderclub.com/rate-cut-coming-what-to-buy-now/
https://www.outsiderclub.com/buy-solid-assets-and-good-things-happen/
