By: Tim Fortier — October 6, 2021
Bill Gates Owns This and So Should You
But something not often talked about is farmland. Surprising, given it's performance.
Farmland has historically delivered strong real returns from two distinct sources: rental and crop payments, and appreciation when the underlying asset is sold.
Between 1992 and 2020, farmland averaged 10.9% in annual returns compared to 7.87% for the stock market and 6% for gold.
Additionally, farmland is an extremely low-volatility asset class. In this same eight-year period, the volatility for farmland was 6.84% while the stock market and gold volatility stood at 16.9% and 14.8%, respectively.
On top of those impressive stats, farmland is negatively correlated to the stock market, making it an ideal asset class for diversifying a more traditional portfolio.
Did you know that Bill Gates owns 242,000 acres of farmland in 19 states? He also owns 25,750 acres of transitional land and 1,234 acres of recreational land for total land holdings of 268,984 acres.
It's true. The Gates’ have been quietly acquiring farmland through their investment manager, Cascade Investment, for over 10 years.
When the The Wall Street Journal profiled the fund in 2014, it was already a significant farmland investor, with “at least 100,000 acres of farmland in California, Illinois, Iowa, Louisiana, and other states.”
And entities, like TIAA, the 111-year old institutional asset manager serving the needs of educators, have $1.2 trillion dollars in farmland.
For too long, farmland investing has been restricted to a handful of institutional investors and ultra-high net worth individuals like the Gates due to high barriers to entry.
But the good news is that you don't need the Gates' level of wealth to benefit from farmland.
You, Too, Can Own FarmLAND
An easy, liquid way to get exposure to farmland is through a REIT such as Gladstone Land (Nasdaq: LAND). This particular REIT owns 153 farms with over 100,000 total acres in 14 states.
The primary focus of the REIT is farmland growing fresh produce (e.g., fruits and vegetables) and certain permanent crops (e.g., blueberries and nuts). The advantage for these versus more traditional commodity crops such as wheat, corn, and soy are:
- Higher profitability and rental income
- Lower price volatility
- Lower government dependency
- Lower storage costs
- Ground that is typically closer to major urban populations, thus higher development potential.
Another major advantage is that crops such as berries and nuts are permanent, growing on trees and shrubs. That's in direct contrast that with commodity crops that must be planted annually.
Since its IPO in 2013, the REIT has purchased over $1 billion in farm assets.
As the portfolio has grown, so has revenue.
Current cash-per-share distributions run $0.0451 per month or $0.5412 per year. Based on the current price per share of around $22.50, that's a current yield of 2.40%
And given that the company has increased the distribution rate on the common stock 23 times over the past 26 quarters, investors can anticipate increasing income in future years.
Year to date, LAND is up 56% after launching from a multi-year base. The current pullback provides investors with an opportunity to buy about 10% below the recent high.
That's especially true given the strong momentum, and its low correlation with stocks. To top it off, hardly anyone is talking about this asset class.
LAND may be the perfect way to.... err... grow some profits in your portfolio.
Have a great day,
Editor, True Market Insiders