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Income from Down on the Farm

January 02, 2020

Food is a critical problem for the world. With the global population continuing to expand, currently at 7.7 billion people and projected to top nine billion in the coming years, agriculture firms stress to produce more and more crops as well as livestock for a hungry world.

Along with that growth in population is the need for more food, and that continues to show up in overall global food prices.

The United Nations’ Food and Agriculture (FAO) World Food Price Index continues to soar, showing the market’s reaction for scarcer resources and its production for an ever-hungrier world.

UN FAO World Food Price Index—Source: FAO & Bloomberg Finance, L.P.

This is presenting some income opportunities that are allowing investors to cash in on the agricultural markets.

Now, you might buy a farm and try your hand at growing crops or raising cows and pigs, but I have a better idea that comes with nice dividends.

You can start with Gladstone Land Corporation (LAND). It owns farmland that’s leased out to corporate and independent farming operations.

The leases are triple-net, meaning the farmers are responsible for maintaining the land, providing insurance and paying taxes.

This is one of the more ideal means of investing in real estate assets. And I’ve recommended several companies in other segments that operate successfully on a similar triple-net basis.

Revenues for the past year are up by 46%, and while the return from funds from operations (FFO)a measure of the return on the leased assetsare more modest at 6%, it does feed a good dividend yield of 4.2%.

And the distributions keep rising, with average annual growth running at 8.2% for the past five years.

Gladstone Land Corporation Total Return—Source: Bloomberg Finance, L.P.

The stock has returned 79.1% in price gains and dividends over the past four years for an average annual equivalent return of 15.7%.

This shows that land and farming is a good place for income investing. But it doesn’t end there… It only gets better for income and gains.

Better Crops Means More Cash

To make more cash from farmland, producing more quality crops is essential.

FMC Corporation (FMC) is my prime pick to get this done. This long-standing company has a history of transforming itself every few decades and is now fully focused on enhancing agricultural production.

It makes and delivers pesticides and herbicides and works with local producers with targeted applications around the globe, including tough markets such as China and India. It received one of the first patents for chemical application hardware many decades ago.

The dividend yield is running at a tame 1.8%, but it has huge 69.3% revenue gains over the past year.

And its 17.3% operating margins are fat, delivering a return on equity of 18%. Lots of cash and little debt makes for a great, dependable company.

FMC Corporation Total Return—Source: Bloomberg Finance, L.P.

FMC has delivered a total return, including dividends, of 112.7% over the past three years during its recent focus on ag-chemicals and makes for a strong and dependable performer for income and gains.

Beef & Pork Make for Tasty Income

For fat and happy farmed livestock, there’s Zoetis (ZTS).

This company makes animal health care products and vital vaccines. They are mission-critical for farm livestock production as well as highly beneficial for pets, including my Dachshund, Blue.

In addition, China and many other markets are experiencing African Swine Fever (ASF), which is decimating pork production and pig populations.

Zoetis is the expert in this field and has patented vaccines to solve this problem.

Revenues are up 9.8% over the past year, and operating margins are an impressive 31.1%.

While the dividend yield is a bit sparse at 0.6%, as the company has been retaining earnings for more product development, the distributions are up 30.2% over the past year.

Zoetis Total Return—Source: Bloomberg Finance, L.P.

Zoetis has provided a total return, including dividends, of 218% over the past five years, well above the S&P 500 Index. It makes for a great play on cash from food and farming markets.

As noted, food is a critical market in need of more growth. And with the right companies addressing this need, there’s ample cash being generated to pay you more income if you buy into the global growth market.

All My Best,

Neil George
Editor, Income Investor’s Digest & Profitable Investing
Author, Income for Life

PS—If you’re looking for better returns in the market or just want to make some extra cash, I highly encourage you to check out Income for Life.

It includes nearly 400 pages of income-producing investment strategies for all economic conditions as well as additional income-generating “side hustles” that anyone can use successfully.