My pick for a stock trading under $20 with significant long-term growth potential is Farmland Partners (FPI 0.36% ). This firm, like traditional REITs, is structured as a real estate investment trust and focuses on farmland, particularly in the United States. Its share price closed at $14.11 on Friday.
One of only two publicly listed farmland REITs is Farmland Partners. The Gladstone Land Company is the other.
Before we get started, I’d like to issue a warning: While there is the potential of finding some relatively underpriced stocks among lower-cost equities, as a whole this area is regarded to be rather risky.
Why invest in REITs?
Real estate investment trusts are a popular choice for investors because they pay good dividends. They must distribute at least 90% of their yearly income as dividends in exchange for the tax benefits they receive.
Farmland Partners’ dividend is currently paying out about 1.7%. This is below average for REITs, but it might be a good fit for investors looking to achieve long-term capital growth rather than current income.
Why invest in U.S. farmland?
In my view, the long-term value of American farmland will rise nicely due to supply and demand factors.
Because of continuing growth and climate change, arable land will be harder to come by in the future. This country and around the world are experiencing more severe droughts as a result of increasing development and climate change. Demand for crops cultivated on land, on the other hand, is expected to increase. The world’s population is increasing, with more individuals moving into the middle class in developing nations.
In addition, the pandemic and the Russian invasion of Ukraine have highlighted the importance of corporations (and entire countries) maintaining domestic supply chains. This is especially true for supply chains for essential items and commodities, such as food.
Another reason to buy farmland now is because of the current high-inflation climate, which investors can accomplish by purchasing shares in a farmland REIT. When inflation is high, investments in real assets tend to outperform those in other categories.
Farmland Partners’ business and key stats
Farmland Partners is a private company dedicated to acquiring, leasing, and managing high-quality agricultural land in the United States. It leases farmland to farmers to cultivate a range of vegetables on behalf of its investors. It also provides brokerage, auction, and third-party farm management services.
By the end of the first quarter, the company’s portfolio included around 160,700 acres of own land and 25,000 acres of managed farmland in 19 states. The firm’s farms have good geographical, tenant, and crop diversity with more than 100 tenants and 26 crop types grown there. There was no portfolio vacancy.
The firm raised its quarterly payout by 20% to $0.06 a month ago. CEO Paul Pittman said the increase was due to “strong earnings progression, significant asset appreciation, reduced debt leverage, and improved budget transparency.”
The company has now announced a 20% dividend increase, making it the first such boost since last year. According to the declaration, management is “very enthusiastic” about the firm’s long-term financial success.
Finally, with a farmland REIT, investors can anticipate some cyclicality owing to the fact that agricultural commodity prices are presently at or near all-time highs. However, for these commodities due to supply demand reasons stated in my opinion, I believe the long-term trend will be up. If this concept pans out, Farmland Partners’ stock should prosper as a long-term winner.