The next time you're about to start your day by heading to the fridge and pouring yourself a nice cold glass of orange juice, just think about how much more refreshing it could be if you knew you were also being paid a 5% dividend annually by one of America's top orange growers.
That's exactly what investors are getting with Alico (ALCO -0.92%), a publicly traded orange grower that owns 81,000 acres of land in Florida.
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A bountiful harvest
Alico pays investors a dividend that yields in excess of 5%, which is juicy in today's market. What I really like about this high payout is that sometimes high dividend yields are the product of a stock falling heavily and the yield increasing that way. Alico is not one of those companies.
In fact, shares are up 34% over the past year. At the same time, it increased its dividend by a whopping 178% to $2 a share in 2021. The dividend payout has also increased by over 700% since 2018 when the company was paying $0.24 annually.
For investors looking to diversify their dividend income mix and add a name to their portfolios that isn't one of the usual suspects with high yields (like energy companies, utilities, or telcos), Alico could be a nice fit. Lastly, it has a long history of commitment to this dividend, having paid it since 1974 with the exception of one year.
81,000 acres in the Sunshine State
In addition to the substantial dividend payout, another attractive aspect of owning Alico is its ownership of 81,000 acres of land in Florida. Of this, 49,000 acres are developed for citrus growing and a further 32,000 are undeveloped, which the company classifies as ranch.
Alico generates additional revenue by leasing out some of this undeveloped land for cattle grazing, recreational hunting, and other purposes. It estimates that its citrus land is worth between $392 million and $490 million, and that its ranch land could fetch between $128 million and $160 million, depending on market conditions. This would lead to a range of $520 million to $650 million for all of Alico's land, vs. a current market cap of just $294 million.
The company also has $135 million in net debt that must be taken into account, but the discount to its land holdings that Alico trades at implies that the company could be significantly undervalued and also gives investors a margin of safety. Orange juice is always in demand, and there are only a limited number of places where oranges can be grown in the United States, so this land should retain its value over time. Lastly, this acreage can provide investors with a hedge against inflation as property values often rise alongside inflation since land is a finite asset.
Is Alico a buy?
With a large portfolio of productive land holdings that are valued above the company's current market cap and a juicy dividend payout of over 5%, Alico looks like a buy for dividend investors -- and for investors generally. The company seems well-positioned to navigate through a wide variety of market climates because its acreage is a hedge against inflation and its primary end market, orange juice, is a key consumer staple.
