What's the Best Farmland Stock? FPI, LAND, ALCO & LMNR

Last Friday, small cap Farmland Partners Inc (NYSEMKT: FPI) had an IPO to join Gladstone Land Corp (NASDAQ: LAND), Alico, Inc (NASDAQ: ALCO) and Limoneira Company (NASDAQ: LMNR) as the latest option for retail investors seeking a way to invest in American farmland. After all, there is that old quote attributed to Mark Twain: "Buy land, they're not making it anymore." Moreover, February Wall Street Journal article noted that From 2009 to mid-2013, average prices for agricultural land in the US rose by half while in Iowa, Nebraska and some other Midwest farm states, prices more than doubled. However, the same article noted that there is mounting evidence that the farmland boom is fizzling out as farmland prices in Iowa fell 3% over the second half of last year and those in Nebraska fell 1%. The good news though is that today's agricultural sector looks markedly different than it did during the last farmland bust back in the early 1980s while Greyson Colvin, the managing partner at investment manager Colvin & Co. (which owns about 7,000 acres of farmland), was quoted as saying: "We think this next 12 months is going to be the best window we've had in the past five years [to invest in farmland]."

With that in mind, here is a closer look at four farmland stocks for investors:

Farmland Partners Inc. A small cap REIT, Farmland Partners owns and seeks to acquire high-quality primary row crop farmland located in agricultural markets throughout North America with the substantial majority of the farms in its initial portfolio devoted to primary row crops, such as corn and soybeans, as the company believes primary row crop farmland is likely to provide attractive risk-adjusted returns over time through a combination of stable rental income generation and value appreciation. Upon completion of a series of formation transactions, Farmland Partners' initial portfolio will be comprised of 38 farms with approximately 7,300 total acres, including 33 farms in Illinois, four farms in Nebraska and one farm in Colorado plus the initial portfolio will include three grain storage facilities. Farmland Partners priced its IPO of 3,800,000 shares at a public offering price of $14.00 per share to raise $49.5 million ($56.9 million if the underwriters exercise their over-allotment option in full) after deducting underwriting discounts and commissions with shares down at $12.98. On Tuesday, Farmland Partners rose 0.76% to $13.20 (FPI has a three day trading range of $12.50 to $13.76 a share) for a market cap of $64.24 million.

Gladstone Land Corp. The owner of farmland in Arizona, California, Florida, Oregon and Michigan with an appraised value over $113 million, small cap Gladstone Land Corp is a REIT that acquires farmland to rent to corporate and independent farmers on a triple-net lease basis, an arrangement under which the farmer maintains the property while paying rent to the company. The company's goal is to build a premier farmland real estate company focused on ownership of high quality farms and farm-related properties that are leased on a triple-net basis lease to good tenants. In late February, Gladstone Land Corp reported earnings with the CEO commenting:

"Our first year as a public company was a good one, but the expenses associated with our first year as a public company impacted our earnings.  However, we are now in a position to grow.  The fourth quarter ended December 31 showed an increase in revenues from our farm acquisitions. To become a REIT, we were required to pay out in 2013 all the earnings and profits accumulated from prior years.  We paid out total distributions in 2013 of $1.49 per share, of which $1.47 related to prior years' earnings and profits."

He added:

"We believe that investing in farmland is more of an asset appreciation investment than an income investment.  We expect farmland values to increase in value faster than inflation."

JMP Securities lowered its price target after earning but continues to see the stock as an effective inflation hedge as well as a quality play for long-term capital appreciation. Gladstone Land Corp has a forward P/E of 45 along with a forward dividend of $0.36 for a 2.8% dividend yield. On Tuesday, Gladstone Land Corp rose 0.46% to $13.05 (LAND has a 52 week trading range of $11.75 to $18.74  a share) for a market cap of $85.22 million plus the stock is down 19% since the start of the year, down 23.2% over the past year and down 13% since February 2013.

Alico, Inc. A Florida-based agribusiness and land management company, small cap Alico, Inc's principle business lines include citrus groves, improved farmland (including sugar cane, cattle ranching and conservation) and other operations (which include rock mining). Alico, Inc is one of the largest private landowners in Florida - owning 130,800 acres in six counties (Alachua, Collier, Glades, Hendry, Lee and Polk) plus it's a leading citrus grower with 11,000 producing acres. In early February, Alico, Inc reported its fiscal first quarter earnings and it was noted that agricultural operations are seasonal in nature with the second and third quarters generally producing the majority of annual revenue while the first and fourth quarters produce less revenue. It should also be noted that last October, two New York-based agricultural companies spent $137.8 million to purchase the shares of Alico Inc held by the heirs of Ben Hill Griffin Jr (the Griffin clan includes prominent Florida political figures including his's granddaughter Katherine Harris, who was secretary of state during the 2000 presidential election recount). Alico, Inc has a trailing P/E of 14.38 and a forward P/E of 33.09 along with a forward dividend of $0.24 for a 0.70% dividend yield. On Tuesday, Alico, Inc fell 2.42% to $35.08 (ALCO has a 52 week trading range of $34.22 to $47.60 a share) for a market cap of $257.85 million plus the stock is down 9.84% since the start of the year, down 18.3% over the past year and up 35.2% over the past five years.

Limoneira Company. Founded in Ventura County, California in 1893, small cap Limoneira Company has nearly 11,000 acres of agricultural production plus its one of the largest providers of lemons and avocados in the United States. In addition to agricultural investments, commercial and residential income producing and for-sale properties round out the company's portfolio. In early March, Limoneira Company reported fiscal first quarter 2014 earnings with revenues coming in at $25.9 million verses $17.4 million as agribusiness revenue came in at $24.7 million verses $16.3 million primarily due to higher lemon revenue. Net loss applicable to common stock, after preferred dividends, came in at $1.3 million verses $3.2 million. The CEO noted:

"While our results reflect the anticipated seasonality of our agribusiness in the quarter, we achieved strong year-over-year revenue growth and operating results, primarily driven by higher lemon sales. Our acquisition of Associated Citrus Packers, Inc mitigated a portion of the seasonality of our business contributing approximately $2.0 million of operating income for the quarter and underscores our ability to successfully integrate acquired orchards into our operations."

He also commented:

"Lastly, even with the current drought in California, we believe our extensive water resources including water rights, usage rights and pumping rights associated with our property provide adequate supplies of water for our agribusiness as well as our real estate development and rental operations."

Limoneira Company has a trailing P/E of 44.91 and a forward P/E of 49.09 along with a forward dividend of $0.15 for a 0.70% dividend yield. On Tuesday, Limoneira Company rose 0.23% to $21.60 (LMNR has a 52 week trading range of $17.19 to $27.41 a share) for a market cap of $303.49 million plus the stock is down 19% since the start of the year, up 12.5% over the past year and up 6.7% since June 2010.

Finally, here is a look at the long term performance of small cap farmland stocks Farmland Partners, Gladstone Land Corp, Alico and Limoneira Company:

As you can see from the above performance chart, small cap farmland stocks have had a bit of a mixed performance when it comes to capital gains and appreciation – meaning investors will need to look more closely at their dividends or income producing abilities.