Like many individuals, I have been interested by shopping for some Bitcoin (CRYPTO:BTC). The primary purpose is to hedge in opposition to inflation, which has been working sizzling this yr. Nevertheless, I have not bought any as a result of it is so risky. The cryptocurrency has had a number of giant declines from its all-time excessive, together with greater than 50% earlier this yr.
Due to that, I’ve began trying elsewhere than cryptocurrency for an inflation hedge. Whereas I additionally thought of investing in gold, I’ve homed in on an under-the-radar actual property funding belief (REIT) that provides lots of the similar advantages to purchasing Bitcoin, plus some further ones with out the stomach-churning volatility.
That REIT is farmland-focused Gladstone Land (NASDAQ:LAND). Here is why I plan to purchase it as an alternative of Bitcoin as an inflation hedge.
Picture supply: Getty Pictures.
Why farmland?
Earlier than we dig into Gladstone Land, I needed to put out the case for farmland as an funding. Since 1991, farmland has delivered larger cumulative returns than all different main asset lessons besides REITs. Additional, farmland has produced these larger returns with much less volatility than all however two main asset lessons (CDs and AAA-rated bonds). In truth, since 1991, farmland hasn’t had a single down yr, whereas gold, the inventory market, and Bitcoin have all skilled declines of greater than 50% from their highs.
Two elements drive farmland’s capacity to ship engaging returns: annual money hire and land worth appreciation. Farmland generates an earnings yield for its traders, making it stand out from different inflationary hedges like gold and Bitcoin, which do not produce earnings. In the meantime, farmland advantages from inflation as a result of land values are likely to rise by no less than the inflation price. These elements make farmland a wonderful inflation hedge.
Digging into Gladstone Land
Gladstone Land at present owns 164 farms comprising about 113,000 acres throughout 15 states. Its farms primarily develop recent produce, like vegetables and fruit, or everlasting crops, similar to berries and nuts. These kind of farms are usually higher investments than those who develop commodity crops (e.g., corn, wheat, and soy) as a result of they expertise much less worth volatility and authorities dependence, in addition to decrease storage prices.
Gladstone primarily leases its farms to farmers beneath long-term triple internet leases, making the tenant liable for insurance coverage, upkeep, and actual property taxes. These leases sometimes embody a hard and fast money cost with annual escalations, upward market changes, or participation options, similar to a share of the farm’s gross income.
These lease phrases present Gladstone Land with a pleasant inflation buffer. It sometimes ties annual hire escalations to the inflation price. In the meantime, participation options present upside to larger costs, with recent produce traditionally outpacing the historic inflation price by 1.5 occasions since 1980. Along with its inflation-protected lease earnings, Gladstone’s farms profit from rising land values, offering one other layer of inflation safety.
Nevertheless, Gladstone Land is greater than an inflation hedge. The farmland REIT has an extended historical past of rising worth for shareholders by increasing its farm portfolio by means of acquisition. For instance, it purchased 5 new farms throughout three states and a few further water entry for $62.3 million within the third quarter. Since its preliminary public providing (IPO) in 2013, Gladstone has grown its farm portfolio from lower than $200 million to just about $1.4 billion right this moment.
Mixed with rising lease earnings, its regular eating regimen of acquisitions has enabled Gladstone to develop its money circulate per share and dividend at engaging charges. Gladstone has elevated its monthly dividend 24 occasions within the final 27 quarters, elevating it by 50.7% general. It goals to proceed increasing that payout sooner or later at a price that outpaces inflation. Total, Gladstone Land has delivered 14.6% compound annual complete returns for its shareholders since its IPO.
All the advantages of Bitcoin (and extra) — with out the volatility
One of many premises of investing in Bitcoin is it may be an inflation hedge. Whereas the cryptocurrency’s returns have definitely outpaced inflation over time, they’ve been extraordinarily risky.
That is why I’ve determined to overlook about utilizing Bitcoin to hedge in opposition to inflation. As a substitute, I plan to spend money on farmland by means of little-known REIT Gladstone Land. It has an extended historical past of delivering inflation-beating returns with loads much less volatility than Bitcoin, which appears more likely to proceed sooner or later.
This text represents the opinion of the author, who could disagree with the “official” advice place of a Motley Idiot premium advisory service. We’re motley! Questioning an investing thesis — even one among our personal — helps us all suppose critically about investing and make choices that assist us turn into smarter, happier, and richer.
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