For those investors seeking super safe income in assets that are non-correlated to the stock market, we need to look no further than taking a position in the Gladstone Land Corp. 6% Cumulative Redeemable Preferred Series B (LANDO), an owner of triple-net lease farmland, asserts Bryan Perry, editor of Cash Machine.
This is a pure income play for our Safe Haven portfolio. The supply of farmland is shrinking, while prices of food commodities and the overall population are on the rise. I also view farmland as a pure inflation hedge. Investors can sleep very well at night investing in managed, commercial farmland.
The parent company Gladstone Land Corp. (LAND) owns 141 farms with approximately 104,000 total acres in 13 states, valued at $1.2 billion. Its acreage is currently 100% leased.
The land is primarily used to grow fruits, vegetables and nuts. The company grows 45 different types of crops across its 141 farms. This protects investors from price swings or diseases that may take place within individual crops.
The company also points out that farmland has lower volatility than the S&P 500 and the MSCI US Real Estate Investment Trust (REIT) index. In the 2005-through-2019 period, the farmland index returned an average of 13.6%, vs. 10.3% for the S&P 500 and 9.6% for the REIT index, while charting a steadier course.
There is no maturity date for this preferred issue — and can be called at $25.00 per share as of January 10, 2022. The stock pays a monthly dividend of $0.125 per share or $1.50 per share per year. Being this preferred stock was issued in Nov. 2020, I don’t expect the company to consider exercising its call option for at least a couple of years. Dividends are paid monthly.
The underlying common stock of Gladstone Land Corp. has soared this past year as funds from operations (FFO) have increased sharply. Preferred dividend coverage is at a comfortable 1.61X.
FFO for the quarter was approximately $4.7 million, an increase of approximately $1.1 million, or 30.6%, from the prior quarter on a 6% rise in operating revenues of $16.04 million.
Unlike gold and other alternative hard assets, farmland is an active investment with cash flows to investors. This is a nice alternative to a bond fund.
I expect inflation, particularly in the food sector, to increase and expect the values of the underlying farmland to increase as a result. Over the last 50 years, the value of American farmland has risen by about 6.1% per year, with only five down years during that period.
With a market cap of only $715 million, LAND is a smaller, niche play in the high-yield fixed-income world, where getting 5.9% in triple-net lease farmland offers lower risk than 4% in junk bonds -- at least in my view.
This is a good place to park cash, collect just under 6% yield and position some capital in what should be a very conservative investment that pays out monthly dividends like clockwork. I know it’s not sexy, but thousands of investors are seeking non-sexy income right now. This is one asset that fits the profile. Buy LANDO under $26.
