China can't counterfeit it. The Federal Reserve can't print more of it. All of the land we have now is all of the land we will ever have. Farmland in particular is one of the most interesting types of land from an investing perspective. According to the NCREIF Farmland Index, farmland has had a positive total return every single year since the index was created in 1991. You will never find that level of consistency from the likes of the S&P 500.
Buying a few thousand acres of farmland is of course not feasible for the majority of us. Similarly, private investment vehicles for farmland ownership are generally limited to wealthy individuals. But within the public markets are a few American stocks that can give the average investor exposure to the opportunity that is farmland.
What's behind barn door No. 1?
One of the largest landowners in Florida, Alico (NASDAQ:ALCO), and its nearly 140,000 acres, is also the largest of these publicly traded American farming plays. The company's biggest source of revenue is its citrus business dedicated primarily to the growing of oranges for juice. If you drink Tropicana, Minute Maid, or Florida's Natural, there is a fair chance that you have consumed some of Alico's oranges. In 2012, Alico grew, harvested, and handled about 3.8% of the entire U.S. orange production.
Over the next decade, however, Florida's citrus production is projected to remain mostly flat and competition from Brazilian-grown oranges will continue to increase. Due primarily to a decline in citrus sales, Alico's total operating revenue last quarter fell to $35.2 million compared to $40.4 million in the previous year. Although Alico's management believes there is a long-term opportunity to expand its citrus business, it remains to be seen if the company will be able to accomplish that goal given larger industrywide concerns.
When life gives you lemons
Located on the other side of the country, Limoneira (NASDAQ:LMNR), with its 7,850 California acres, is also a grower of citrus crops. As the company's name might suggest, Limoneira is one of the largest growers of lemons in the United States, as well the single-largest grower of avocados in the U.S. If we play another game of "Name That Grower," you can thank Limoneira for that guacamole you had with your order at Chipotle Mexican Grill (it's one of Chipotle's "Food With Integrity" suppliers).
Unlike Alico and its Florida citrus business, Limoneira's California agribusiness has performed very well this year. The company's third-quarter lemon revenue increased to $19.1 million from $15.5 million during the previous year's third quarter. Similarly, the company's avocado revenue increased to $7.7 million from $5.5 million.
Overall, the company's third-quarter revenue grew by 21%. Even more impressive, the company's overall revenue for the nine months ending July 31 grew by 38.3% compared to last year. The company's stock reflects this outstanding performance, with shares shooting up nearly 35% year to date.
A newcomer to the public markets, Gladstone Land (NASDAQ:LAND) is the smallest of the group, with slightly less than 2,000 acres of farmland. Much of that land is located in California (1,229 acres) and Florida (402 acres), but the company has been using the proceeds from its recent IPO to diversify geographically. It acquired a 119-acre farm in Michigan and a 209-acre farm in Oregon.
In contrast to Alico and Limoneira, Gladstone Land does none of the actual planting, harvesting, hauling, or marketing of crops itself. The entirety of Gladstone Land's business is the leasing of its farmland to others. Leasing the land to corporate and independent farmers on a triple net-lease basis (tenants being responsible for the taxes, insurance, and maintenance), Gladstone Land simply collects the rent and distributes the majority of the company's cash flow to shareholders. That distribution currently stands at a monthly dividend payment of $0.12, an annual yield of approximately 8.9%.
Foolish bottom line
Renowned 19th century author Mark Twain was once quoted as saying, "Buy land, they're not making it anymore." Genius in its simplicity, that bit of investing advice is as spot-on today as it was back in the 1800s. Farmland investing it not without its risks, but history has shown us that farmland is a great alternative to the stock market. With few opportunities available to the average retail investor, though, these three farmland stocks offer us the next best thing to direct ownership.
Fool contributor Matthew Luke has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill. The Motley Fool owns shares of Chipotle Mexican Grill. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.