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Is Gladstone Land Corporation a Buy?


Jul 31, 2020 by Liz Brumer

Agriculture and farmland are both vital components of our global economy and are responsible for producing not only the food we eat but also many non-food products we use on a daily basis. While no asset class or investment is risk-free, agricultural investments have proven to be somewhat of a safe haven, resilient in times of economic hardship, and a profitable asset class that keeps pace with inflation.

Investors interested in participating in this asset class may look to Gladstone Land Corporation (NASDAQ: LAND), an agricultural real estate investment trust (REIT) that owns 87,860 acres of farmland across 10 states. They own 113 farms, leasing the land through triple net leases and leasebacks to independent third-party farmers.

Agriculture land focusing on high-demand crops

The company is well diversified in location and crops, focusing mostly on fruit and vegetable crops rather than commodity crops like soy, corn, or wheat, which often sees more significant fluctuations in demand, price, and returns. Their farms currently produce 45 different varieties of fresh produce including fruits, vegetables, and nuts like berries, almonds, apples, pecans, figs, olives, pistachios, blueberries, and wine grapes.

Strong track record with room for expansion

Occupancy as of the first quarter of 2020 was 100% and has remained high over the past seven years, with the lowest occupancy rate being 99.5%. The company is growing rapidly and focusing a large part of its efforts on acquiring new properties, with crop diversity, water quality, and experienced tenants at the forefront of its acquisition criteria. In the second quarter of 2020, it purchased two new farms for a total of $17.7 million, adding 1,268 acres to its portfolio.

Gladstone Land Corp., much like the other large agricultural REIT, Farmland Partners (NYSE: FPI), is a growth stock. That means this isn't a REIT you're likely purchasing for its dividend yield, which is around 3.6% at its current dividend payout of $0.048 per share, but for the potential it has in the long term.

While it shows promise, LAND's track record is inconsistent, with several quarters over the past few years showing net losses. With that being said, lease revenues and income are growing, reaching their highest levels to date in 2020. The company has also increased dividend payouts 18 times in the 21 past quarters and maintains a conservative payout ratio of 53%.

It will be interesting to see the second-quarter earning reports and how the company has fared in the global pandemic, but in my personal opinion, Gladstone Land Corp. is a reasoned buy for investors who are seeking growth stocks and willing to take on a bit of risk for reward.

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Liz Brumer-Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of Farmland Partners. The Motley Fool has a disclosure policy.

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