It may feel impossible to beat the market during a bear market, but certain stocks can offer market-beating returns right now. Take real estate investment trust (REIT) Farmland Partners (FPI -1.21%), for example. The stock is up 16% this year while the broader S&P 500 is down 19% -- that's over double the return of the S&P.

Investors have flocked to this farmland REIT for one main reason: inflation.

Let's take a closer look at whether this under-the-radar stock can offer investors a hedge against inflation and if it can continue to offer market-beating returns moving forward.

A hedge against inflation

Often referred to as an inflation hedge, investors are scrambling to find investments that can offset the decreasing value of the dollar due to decades-high inflation. Commodities including many of the products Farmland Partners tenants grow, like corn, wheat, soybeans, fruits, and vegetables, are historically known to be great inflation hedges. 

Most investors aren't able to invest directly in a farm, nor are they farm owners themselves. This is what makes Farmland Partners so appealing. It offers investors direct access to the high-demand industry through its diverse portfolio of farmland.

The company doesn't farm the land itself, rather it leases the farmland to tenants over long-term net leases, earning its income from the rent. On top of its rent collection, it also earns a fee for managing around 25,000 acres of farmland for other farmers. As of Q3 2022, it had over 185,000 acres in its portfolio, which grow 25 different crops in 18 states across the country.

According to the latest inflation data from the Bureau of Labor Statistics, the price of cereals and bread products was up 16.2% compared to last year while fruits and vegetables were up 10.4%. That's notably higher than the blended inflation rate of 8.2%.

Contrary to the movements of other REITs and the stock market lately, Farmland Partners has gone nowhere but up. At the start of the pandemic, concern grew over potential food shortages. In turn, demand for food products and the farmland that produces them skyrocketed.

Over the last three years, Farmland Partners has provided a nearly 32% annualized return. That's over three times the S&P 500 during that same period and is around four times more than today's inflation rate.

Is Farmland Partners a buy?

Farmland Partners is one of two farmland-focused REITs. Its closest competitor, Gladstone Land, is down 39% this year. So if you're looking for a hedge in the commodities industry, Farmland Partners is the clear buy of the two. However, there are some things investors should know before buying.

At 1.6%, the stock doesn't offer a huge dividend yield. In fact, it's one of the lowest of all REITs. That's because the company had to cut its dividend to combat a class action lawsuit against a short-sale scheme in 2018. The company has won the lawsuit, and since raised its dividend by 20%. However, it has indicated it intends to move away from the high-dividend-paying REIT structure and focus more on growth opportunities -- meaning investors shouldn't expect much dividend growth in the near future.

In late 2021, the company acquired farmland management company Murray Wise Associates, which opened the door to a whole new income stream. Its management business includes executing leases on farmland or helping buy or sell land for farmers, and is a big part of the company's future. Farmland Partners is also continuing to acquire new properties to help grow its revenue streams. Year to date, it has acquired 11 farms with another 2,800 acres of farmland under contract.

Its latest Q3 2022 earnings exceeded analysts' expectations, prompting the company to raise its full-year guidance once again. In response, its share price popped by 4%. That means Farmland Partners is trading around 51 times its adjusted funds from operations (a metric that works similarly to earnings per share). This is extremely high by REIT standards. Most REITs, including some of the largest and usually most premium-priced REITs, trade between 10 to 30 times their FFOs.

This tells me the REIT's price today reflects investor optimism surrounding Farmland's growth, not necessarily its actual performance. There is a good chance wheat and other food prices will remain high as commodities feel pressure from European conflicts. Investors bullish on farmland in today's economic climate should consider adding Farmland Partners to their portfolio. Just know that you're paying a premium for the hedge it's offering.