Back-Testing My Investing Thought Process During a Crisis

It’s easy to be a “good investor” when everyone is making money. When the market is up 30% in a year, the odds are pretty good that you’ll enjoy logging into your TDAmeritrade account and watching the value of your positions increase. “Look at me,” you’ll chuckle to yourself, spreading your arms aloft in front of your laptop like Leonardo DiCaprio at the bow of the Titanic, “I’m the king of the world!”

But good investing times can also breed bad investing habits. So it pays to take advantage of a crisis like this to go back and look at the companies you liked a year ago and ask yourself whether that pick still makes sense, whether your thought process in selecting it was sound, and whether you would buy it again today. To illustrate this process, I’m going to walk through that analysis with a prior post I did about Essex Property Trust (ESS), a residential REIT with extensive holdings on the West Coast.

I did a post about ESS on February 11, 2020. That was about 2 months ago. For long-term buy-and-hold investors (and, since this is a blog about dividend investing, I am going to assume that you’re a long-term buy-and-hold investor), 2 months is nothing. If a stock was a decent investment two months ago, it’s probably a decent investment now. Sure, things can change – CEOs can be fired or rung up on criminal charges, Enron-like events can strike out of nowhere, etc. – but, by and large, if a stock is a buy for a dividend investor it will probably stay a buy for years and years. I buy shares of Starbucks (SBUX), one of my favorite companies, a few times a year without even really checking the price. I just like owning Starbucks, don’t have any plan to sell my shares, and pretty much always want to own more of it. It would take a gargantuan event to get me to reconsider that position. But, as it happens, we’re in the middle of a gargantuan event in the form of the worldwide COVID-19 pandemic (although, for the record, I’m still long SBUX.) So I thought that now would be a good time to go back, review that post, and see how my analysis holds up. This is always a good thing for investors to do, pandemic or no. Look at your old predictions or analyses and ask yourself, as non-judgmentally as possible, What the fuck was I thinking?

When I wrote the last article, I was bullish on ESS. The share price that day was $317.04. Things have, uh, changed. As of this writing, ESS trades at $238.79. Meaning that if you bought ESS back on February 11th of this year, you’re down about $79 per share and you’re probably not feeling great right now. In fact, you probably feel like you’ve been stuck on a long elevator ride with an especially amorous grizzly bear.

But has anything really changed? People are still renting fancy apartments in big West Coast cities. Sure, a lot of folks have lost their jobs (and presumably aren’t paying rent as a result), but there doesn’t appear to have been a massive drop in rents, indicating that the market is roughly steady. It’s possible that everyone working from home will convince employers to embrace telecommuting and the importance of living in big, expensive cities like SF and Seattle will decrease concomitantly. But, if I had to guess, there will still be a demand for apartments in those cities 5 years from now and those apartments will still be pricey. Meanwhile, companies that lease residential real estate have a pretty stable business model since their leases tend to be a year (or more) in duration. So it’s hard to say how much has changed for ESS because of the COVID-19 pandemic, but, looking at the long term, I would have a hard time faulting you for thinking the answer is “not tons.”

Meanwhile, we ought to keep in mind that when the share price of a stock decreases so does the risk associated with buying that stock. When I last wrote about ESS in February, the shares traded at a P/FFO multiple of roughly 23 times last year’s FFO/share. (“FFO” refers to “Funds from Operations” and REIT investors tend to use P/FFO instead of the usual P/E ratio favored by investors in other types of companies.) Now ESS trades at about 17.3 times last year’s FFO/share. So the stock is certainly cheaper. Similarly, the dividend (which appears safe since it has been increased for 25+ years running) has only gotten more appealing. At last writing, the stock yielded 2.46%. Today’s yield is roughly 3.44%.

The bottom line is that looking at traditional valuation metrics (P/FFO and dividend yield) the stock looks even better now than it did when I first wrote positively about it. There are big uncertainties here. I could be wrong in my positive view about the company’s long-term outlook. I could be wrong about the stability of the dividend. COVID-19 could impact us all in yet-unforeseen ways. (In fact, it probably will.) But the key question in the analysis is this: Has anything major and permanent changed about the business itself? If the answer is no, as I at least tentatively believe it is in this case, then a falling stock price should only serve to further whet the investor’s appetite.

The Peace that Comes from Dividend Investing

We are living through history. And, as I suspect has been the case for most folks throughout history with a conscious feeling of “living through history,” it doesn’t feel great. The REIT Dude has been “sheltered in place” with Mrs. REIT Dude and Baby REIT Dude for a bit more than a month now. I am getting used to working from home. I actually love having more time to spend with the little guy. I’m getting plenty of reading done, and I’ve even lost a little weight since I can’t eat at my favorite (mostly Mexican and unhealthy albeit delicious) restaurants. So there are plusses to the whole experience. But I’m also furiously refreshing the Coronavirus control panel website, reading far more news than I ought to read, having difficulty focusing on work for long stretches of time, and generally worrying about the fate of the world (and the world economy). Like everyone else, I don’t know when we will return to public interaction; nor do I know when it will be safe to do so. Estimates seem to range from three weeks to three years.

Waiting for “shelter in place” to end feels a bit like being in an airplane that’s stuck on the tarmac. People get more and more stir crazy, drink too much booze, and every 20 minutes the captain comes on the intercom to say that it will be “just about another 20 minutes” before we’re ready for takeoff. Although, in this analogy, everyone on the plane is giving everyone else a potentially lethal respiratory infection.

As weird of a time to be alive as this is, it’s an even weirder time to write an investing blog. Because the truth is that I have absolutely no fucking idea what the market is going to do. Last week we got a torrent of bad economic and virus-related news and the market went up by about 12%. This week, apparently, it’s back to going down. But for all I know that will change by the time I’m done writing this post. The only thing I know for sure is this: Every single time the market has ever gone down, it has always been a buying opportunity for long-term investors. True enough, the market has never crashed due to a novel coronavirus before. But it has crashed due to unprecedented financial collapses, terrorist attacks, wars in the Middle East, and all manner of other jarring, often unique world events. I don’t know how bad this will get. I don’t know how long it will take to get better. But I do know that betting on the American stock market has always been the right bet, so I continue to do it, even though things look ugly right now.

But this crisis illustrates one of the main reasons why I love dividend investing. And one of the reasons why it may be the most profitable investing strategy out there. My overall portfolio value is down recently (whose isn’t?), but you know what isn’t? My projected dividend income. That is why I would urge every single reader of this blog to track your dividend income. Keep a spreadsheet and update it every 2-3 months. I use three columns: Ticker symbol, annual dividend, and number of shares. I multiply the latter two together to get my projected annual dividend income from each stock I own, and I add these together to get my dividend income for the year. The value of my portfolio might be down a bit, but as I keep buying more and more shares of quality companies at discount prices (i.e., with higher dividend yields), my dividend income keeps going up.

Between February and today, my projected annual dividend income has increased by about $700. That will only get better with time as companies continue to raise their dividends year after year and I continue to acquire more shares. Soon enough, I’ll have enough dividend income to pay my monthly expenses. And if that happens, it will be in large part due to the fact that I was able to use scary times like this as an opportunity to acquire more and more shares of high-quality companies (i.e., more and more little dividend factories).

To be clear, it takes a lot of luck to focus on investing when the economy is going through turmoil. I’m fortunate enough to have an emergency fund saved in cash, to have a mortgage that I can afford, and, most importantly, to have a job that I’m not worried about losing (at least in the near term). So I can basically throw all of my extra money into the market right now, and if the share prices drop by half, I’ll just keep buying more. A lot of folks aren’t in that situation. But if you are fortunate enough to be able to invest right now, do it with gusto, and try to tune out the share price movements and focus on those dividend checks piling up.

Portfolio Haircuts and Dividend Investing in the Age of Social Distancing

The world continues to be frightening and feel insane. I, like many of you, am working from home for the next couple of weeks. It’s difficult to focus on work because I keep refreshing news sites and Google Finance, only to discover that San Francisco has a “shelter in place” order in effect, the market had one of the worst days in its history, and Idris Elba has joined Tom Hanks on the (one presumes growing) list of coronaviral celebrities. Things are, uh, not great. This reminds me a lot of 2008, both in terms of the overall decline in the market and the sense of panic, bewilderment, and helplessness that accompanies it. I am beginning to wonder if this was how 1929 felt. That’s not to say that we’re heading for another Great Depression; only that the currently vertiginous nature of the Dow’s chart is, if not unprecedented, pretty damn rarely precedented.

I suspect that market watchers in 1929 had a very clear (if unsettling) sense of living in a historical moment. The past, by definition, becomes history, but it’s only rarely that we feel it happening; it’s a bit like how the Earth’s crust is always moving, but you only notice earthquakes. In my lifetime, there has been only one other time I’ve felt this way, and it was in the days after 9/11. Then as now there was a sense of solidarity with strangers, a sense that we were all in this together, and even though everyone was scared we were going to get through it. Then as now we engaged in little gestures of solidarity to let one another know that we have each other’s backs. American flags on the front porch in 2001; social media posts encouraging social distancing in 2020. This time the enemy is a microbe and we offer support by keeping one another company online, playing Words With Friends, delivering home cooked meals to an elderly relative who wasn’t able to grocery shop, etc. In terrifying times (and it’s becoming pretty clear that this is one of those), humans have always relied on one another to get through, and as I see how many people are staying home to avoid spreading the disease, disrupting their lives and their businesses to do so, it’s deeply reassuring to know that we are still capable of coming together and rising to great occasions.

Just as you can derive some comfort by focusing on the more positive aspects of the current mess we’re all in, you can also derive some comfort by focusing on the right aspects of your investment portfolio. Today was another record-breakingly bad day for the market (and REITs in particular), but for dividend investors, that means we are seeing some truly unique opportunities to buy good companies at yields higher than we’ve seen since 2008-09. It’s not easy to keep buying in the face of a plummeting market, but it gets easier when you regard your stocks not as capital gains dice rolls but as dividend factories, with each share churning out payment after payment, quarter after quarter. Dividend cuts may be coming, but if you keep a spreadsheet showing your projected dividend income (and you should), my guess is that right now your sheet shows the same number as it did 3 weeks ago. And if you just keep buying more shares, you’ll keep adding to that dividend income. The share price is going to fluctuate (and probably fluctuate like crazy in the next few weeks) but in most cases those dividends will just keep coming. I bought a few shares of Starbucks (SBUX) and Wells Fargo (WFC) today and plan to hold onto them for the next 20+ years. Anything could happen, but my guess is those dividends will trickle in right on schedule and I’ll look back in a few years and be glad that I got the deal I just got. And next week if the Dow is at 15,000, I’ll be buying more shares and saying the same thing. It takes a strong stomach to be greedy when others are fearful, and a stronger stomach to be greedy when you’re fearful yourself, but focusing on those dividends coming in year after year with every share you buy helps the medicine go down a little smoother.

Good luck everyone. It’s weird out there.

Coronavirus and the REIT Dude’s Investments: Part 2

There’s a lot going in in the REIT Dude’s life right now. I have an incredible 2-month-old baby at home. I spend my days (and the occasional night and weekend) working in the corporate world. And, it lately seems, I spend the remainder of my time looking at market news and wondering if the world (or, at a minimum, the Dow Jones Industrial Average) is going to implode. When I last posted about the Coronavirus, it was February 28, 2020. That now feels like 2 years ago, not 2 weeks ago. But the virus is still so new (so “novel,” if you will) that Chrome’s spellcheck doesn’t yet recognize its existence and identifies it with a squiggly red underline.

At the time of my last post, the Dow stood at 25,766, a situation I then described as “decidedly sub-ideal.” Since then things, uh, haven’t improved. As of this writing, the Dow dropped 9.99% today alone and now stands at 21,200. We may be at the end of the fall, or we may be nowhere close to the end. The federal government will be stepping in any minute now to conduct evasive manuevers, but what it isn’t doing–providing enough tests for the virus, establishing procedures for testing the populace and quarantining those who come up positive, and putting the country on wartime footing to devote whatever resources might be necessary to the search for a vaccine–may be more important, both biologically and to the market. Fiscal stimulus is significant, but we are faced with a biological problem and I won’t be surprised if the market continues to panic until there is a biological solution, whether that means the development of a workable vaccine or the flattening out of the new infections curve. The remainder of the NBA season was cancelled, March Madness was cancelled, and the baseball season has been postponed. I don’t want to exaggerate the importance of sports to financial markets, but I actually think all of those things matter a lot. To people who rarely watch the news and don’t follow financial markets closely, that might have been the first time they realized that the Coronavirus is a seriously big deal. The bottom line: If things were bad on February 28, they’re positively fucked now. And it’s going to get worse before it gets better.

I can’t tell you what to do, but I can tell you what I’ve done. Mrs. REIT Dude and I stocked up on the essentials (toiletries, diapers, laundry detergent, TP, non-perishable food, etc.) We also made sure not to waste precious freezer space. Our freezer is filled with frozen meat, fruits, and veggies in case we aren’t able to get fresh food for a while. There are plenty of eggs in the fridge which can be hard-boiled to extend shelf life if need be. Hand sanitizer was long gone, so I bought a couple bottles of rubbing alcohol. I also bought a substantial amount of beer, just in case quarantine gets boring. None of this required paying exorbitant prices to third-party sellers on Amazon. All told, I think we spent about $400. I’ve seen a lot of people on social media claiming that it is a sign of panic and social decay to stock up on goods like this. Perhaps so, but honestly I don’t see the harm. Even if the danger turns out to be exaggerated, this is all stuff we’re going to use anyhow. It’s not the end of the world to buy July’s toothpaste in March.

As for my investing, despite it all, nothing has changed. I contribute the same amount (as close to the max as I can get) to my 401k every month, and it’s automatically invested 80/20 into Vanguard’s total stock and total bond market funds. On top of that, I haven’t sold anything, and I continue to purchase the same individual stocks I like. If anything, as a dividend investor, there are suddenly a whole lot more stocks that seem appetizing to me. But while I haven’t sold anything, I am putting a little bit more focus into quality. At this point, bankruptcies in the travel and leisure sector are a very real possibility. This could spill over into other sectors (for instance, hurting the bottom lines of the banks that provide large revolving credit lines–sometimes unsecured large revolving credit lines–to those companies.) I will probably do a post about lodging or retail REITs I might gamble on later, but just keep in mind for now that those companies constitute gambling at this point, and that’s not what I’m in the mood for right now.

When I’m buying REITs right now, I’m looking for top-shelf blue-chip issues that aren’t in the immediate “blast zone” of the Coronavirus. This would include high-end residential REITs like Essex (ESS) and long-term triple-net REITs like Realty Income Corporation (O). Many investors believe that REITs are dangerous in a time like this, and to some degree that’s true (if only because all equity investments are dangerous in a time like this), but keep in mind that REITs are traditionally considered defensive stocks that thrive in down times. It’s only because the last big recession in 2008 involved real estate that we have the perception that REITs underperform in a recession. Now is a good time to look for high-quality companies that are getting battered with the rest of the market but that are likely to be standing tall when the Coronavirus passes.

The other alternative is not to even bother with picking individual stocks. In a bull market, the indices are soaring, and there’s a lot more incentive to look under rocks for bargains and high yields. But when the entire market is down 20, 30, even 40%… you may as well just buy the market. I would be hard-pressed to argue with anyone who devoted 100% of their investing dollars into Vanguard’s total market index fund (VTI) or its REIT cousin (VNQ) right now. As of right now, VTI yields 2.1% and VNQ yields 4.66%. Locking in yields like those on broadly diversified index funds is far from the worst idea on the planet.

Whatever you do, keep your loved ones close, and stay safe. I’m thankful to the readers of this blog (however few in number you may be), because, among other things, the internet will only become a more important source of social interaction if we all wind up in quarantine over the coming months. Stay the course with your investments, and just try to keep in mind that as share prices drop downside risk decreases correspondingly. If those dividends don’t get cut, you can lock in some sweet yields.

We’re All Going to Die of Coronavirus and it’s Time to Freak the Fuck Out.

First off, I apologize for the lapse in posting. Blogging about REITs and dividend investing may be a hobby, but I’ve also got a day job that can keep me preposterously busy from time to time. But, on the off-chance there are actually “fans” of this humble REIT blog who have been refreshing the page waiting for another post, well, great news–this is that post. I’ll certainly try to keep this more frequently updated in between work and being a new dad.

If you’re the sort of person who reads down to the second paragraph in a post on a blog about REITs, then you’re probably the sort of person who follows the market pretty closely. And if you’re the sort of person who follows the market pretty closely, you’ve probably noticed that everything is, to use a technical term they teach in B-school, completely fucked right now. The S&P 500 is down 4.42% in a single day today, and that’s following on an entire week of massive losses. A few weeks ago people were breaking out their “DOW 30,000” hats. As of right now, the Dow sits at 25,766. Things are decidedly sub-ideal.

The culprit, apparently, is a respiratory illness in China called COVID-19 or the Coronavirus, a virus which, although I am not a doctor, I can say with some certainty is less appealing than the slightly skunky Mexican beer after which it was (I assume) named. It began in Wuhan, China and has spread to Italy, Iran, South Korea, Singapore, countless other places, and, most troublingly for the Dude who is himself a lifelong Californian, California. All of this seems not great, although the Chinese government is about as trustworthy as a meth addict at the BART station asking to borrow your phone for a quick phone call, so we’re not really sure at this point how dangerous the disease actually is. I guess we’re all going to have to wait and see.

Still, the bottom line is that having your money in the market this week has been about as fun as wearing a pair of underpants made of angry bees. If your portfolio happened to be heavily weighted towards energy stocks or (for some reason) cruise line stocks, you’re probably considering just changing your name, faking your death, and starting a beachside cabana bar in Puerto Vallarta with what remains of your meager savings. (Actually, you should do that regardless of how your portfolio performed this week; it sounds like an awesome idea.) The Dude himself took heavy fire and his portfolio is not looking great. So what do we do?

Nothing. Keep investing like you always have. If you have a little extra money, invest more. Look for great companies that seem unreasonably beaten down, or just throw money into index funds since there isn’t much point looking for deals when the whole market took a dive. The point is, don’t give up; double down. I write this fully aware that the market can drop another 30% in the next 2 weeks for all I know. And, in fact, if the market does drop another 30% in the next 2 weeks, I’ll be writing the exact same thing with even more emphasis. Because as the price of a company’s shares drops, the risk involved in owning those shares does down, not up. The lower the share price, the less risky the investment. The bigger the dip, the more you buy.

The bad news is that we haven’t seen the market like this since 2008-09. The good news is that history shows us that the investors with the courage to double down every time the market dropped and keep taking the pain in those years ended up, if they held on, getting very, very rich. Ultimately, one of two things is going to occur. Either, (1.) coronavirus will be just another passing event and global capitalism will continue to march on toward new highs like it always has, or (2.) it’s really a civilization-threatening catastrophe and we’re all fucked. I genuinely don’t know which it is, although I certainly suspect the former. But if it is the latter, I won’t regret continuing to buy stock, because in a post-apocalyptic, Mad Max-style hellscape where there is no law and we are ruled by gun-toting motorcycle gangs, if I even live long enough through the outbreak to see that outcome, I will have far bigger problems than portfolio underperformance. For instance, a lack of clean underpants.

Be a Lazy Farmer With REITs, pt. 2: Gladstone Land Corporation (LAND).

Yesterday on this here REIT Blog I wrote about how you can use REITs to invest in farmland and looked at one specific agricultural property REIT–Farmland Partners, Inc. (FPI). Today, I am going to look at another agricultural REIT – Gladstone Land Corporation (ticker: LAND). Before we start looking at LAND, let’s review some of the reasons why you might want to invest in farmland:

  • Increased diversification.
  • Farmland has been a stable investment for thousands of years.
  • You can finally make an account on FarmersOnly.com. (Note: This may or may not be true.)
  • You are looking for an excuse to wear plaid shirts tucked into Wranglers.

Whether or not you have any interest in investing in farmland, the fact that it’s an option is a great illustration of why I love REITs. It used to be that if you wanted to own a diversified real estate portfolio you needed to have enough money to buy a bunch of different kinds of real estate which, suffice it to say, most of us do not have. The only way this option would be even remotely available to ordinary people would be to take on a ton of leverage – an option that is, to say the least, not without risks. Now, for about $10, you can invest in farmland thanks to REITs. Now, onto the REIT at hand, Gladstone Land Corporation:

Gladstone’s business model involves buying farmland and leasing it out, primarily on a “triple net” basis. (Note: A triple net lease is one which requires the tenant to pay for property taxes, insurance, and repairs. This is generally the most profitable, low-risk lease variety from the landlord’s view, which is why as REIT investors we always like to see triple net leases.) You can see a complete list of their farms here. Gladstone’s website provides a pretty awesome level of transparency. You can browse through their farms and actually see satellite pictures of each farm as well as information on acreage, water sources, and crops grown. Clicking through their California farms, I saw almonds, pistachios, peppers, figs, and strawberries. The wide assortment of crops across geographic regions offers protection against a dip in corn, soybean, or wheat prices. (Note: The Dude is not even going to begin to guess what will happen to commodity prices in the near future; the point is just to know that commodity prices change for whatever reason and diversification across different crops can help to buffer against that risk.) This is intentional: In a PowerPoint for investors, Gladstone expressed a belief that “farmland growing annual fresh produce (e.g., most fruits and vegetables) and certain permanent crops (e.g., blueberries and nuts) is a superior investment over land growing commodity crops (e.g., corn, wheat, and soy).

As of November 6, 2019, Gladstone owned approximately 86,534 acres of farmland across 10 states, with the biggest presence in Colorado, California, and Florida. (Source: November 6, 2019 investor presentation, p. 12.) This is the result of pretty quick growth: Gladstone’s portfolio consisted of less than 20,000 acres in 2015. (Ibid. at p. 17.) Gladstone reports the fair value of its portfolio, as of September 30, 2019, as $824.5M. (Ibid. at p. 22.)

Looking at the numbers, LAND had FFO per share of $0.49 last year, up from $0.38/share in 2018 but down from $0.53/share in 2016 and $0.54/share in 2017. Rental revenue, however, is steadily increasing at a nice rate: $11.9M in 2015, $17.3M in 2016, $25.1M in 2017, $29.3M in 2018, and $35.2M in 2019. They have almost tripled rental revenue in the past 5 years.

FFO for 2020 is projected at $0.53/share. Assuming that is correct, the current P/FFO ratio is about 26.4, which is a bit higher than I generally prefer. The dividend is $0.54/share and the shares yield 3.83%. That’s a decent yield, but I always get nervous seeing a dividend that is higher than projected FFO per share. If they can’t grow FFO, they may eventually need to either take on debt to pay the dividend or else cut it, neither of which are good outcomes for investors. Fortunately, the rocketship-like growth in rental revenue suggests to me that as long as they can keep costs under control the FFO growth will follow. The 3-year dividend growth rate of 2.58% does not amaze me, but, on the plus side, Gladstone has increased the dividend at least a little bit each never and never cut it.

Looking at the balance sheet, I see $503.7M in total liabilities. Subtracting that from the $824.5M in estimated total land value reported by Gladstone in its investor presentation, that gives us a surplus of about $320.8M. If that is correct, the shares seem slightly undervalued (notwithstanding the somewhat-lofty P/FFO ratio), as Gladstone’s current market capitalization is approximately $297.1M. This disparity suggests room for a 10% increase in share price even without a change to the company’s underlying fundamentals.

The Dude’s Final Recommendation: LAND looks like a great, fast-growing company. I may buy some shares, but I am a bit concerned about the closeness of their dividend and their FFO/share. Might be best to keep this one on a watch list and dollar-cost-average in slowly over the next year or two in order to keep an eye on FFO growth.

Be a Lazy Farmer with REITs, pt. 1: Farmland Partners, Inc. (FPI).

Throughout human history, farmland has been one of the most popular investments. In many pre-industrial societies, it was essentially the only source of generational wealth. While today’s investor has infinitely more choices, farmland remains a compelling investment for many reasons: Land has a fundamental value, and there will always be demand for crops as long as humans get hungry every few hours. Commodity prices oscillate according to market whim and geopolitical happenings, but whether the economy is red hot or ice cold people need to eat, and as long as people are eating farmers will be growing their food. But for a long time, the only way to invest in farmland was to actually buy farmland. From there you could either work the land yourself – which is the absolute opposite of passive income – or lease it out to someone else. For most individual, middle-class investors looking for passive income, adding farmland to the portfolio has always been impracticable if not impossible. REITs solved that problem, and now you can invest in farmland for a bit under $10.

This is the first in a series of posts looking at agricultural REITs, i.e., REITs that own farmland. Today we are going to focus on Farmland Partners, Inc. (ticker: FPI). According to its website, as of March 13, 2019 FPI “owns or has under contract” over 162,000 acres of farmland across the country. That property is leased to more than 125 tenants who combine to grow more than 30 crops.

According to SeekingAlpha, FFO per share has ranged from $0.40 to $0.53/share over the past few years, up from $0.20/share in 2015 and a small loss in 2014. The broader trend isn’t bad, although of course the Dude would prefer to see uninterrupted never-ending FFO growth. Forward FFO is projected to be $0.40/share, in line with the last couple of years. At the current share price of $6.79, FPI trades for 16.975 times projected FFO, which seems like a reasonable valuation.

It sounds like 2019 was a bit of a rough year due to the trade war with China (one of the largest export markets for American agricultural products) and some unusually bad weather. These issues may be weighing on the share price, and that’s not entirely unreasonable. But it would seem that there is a bit of short-term-ism at work here. Political conflicts and weather events will come and go.* I can’t tell you what U.S.-China trade policy will look like 1, 5, or 10 years from now, but I can tell you that most things eventually blow over and people have been profitably growing crops for more than 5,000 years. If anything, the current geopolitical fracas and bad weather may provide a buying opportunity for investors with a sufficiently long holding period in mind.

Looking at the balance sheet, FPI appears pretty strong. They have at last report approximately $1.072 billion in real estate assets against liabilities totaling $525.7 million. That leaves them about $547 million above water. That’s plenty of equity they can tap to make new acquisitions, weather storms relating to the trade war, and so forth. Moreover, at the current share price, FPI’s market capitalization is only $214.79 million. If FPI’s net asset value (“NAV”) is anything close to $547 million, that’s a pretty absurd discount and it suggests the potential for serious upside movement in the share price.

FPI pays a dividend of $0.20 per share, paid out quarterly in increments of $0.05. At current prices, the shares yield 2.95%. Looking at the projected FFO of $0.40/share, which is in line with results in the recent past, the dividend appears safe and well covered. The dividend history is less than ideal: FPI paid out $0.51/share in 2016, $0.355/share in 2017, and has been at $0.20/share since, which is pretty much the opposite of the trendline you want to see. Still, the current dividend looks safe, and we can hope that the payouts to shareholders will only increase from here forward.

In summary, FPI hasn’t had a perfect 2019, but the shares look cheap, the dividend looks safe, and it’s a convenient and inexpensive way to add farmland to your diversified passive income stream. This looks like a decent investment.

*Obviously there is plenty of room to debate the extent to which climate change will impact agriculture, but it seems reasonable to presume that a changing climate will effect the way farmers do business. But it would stand to reason that if the climate gets worse for some crops in some places it will get better for other crops in other places. Climate change is quite likely to be a net-negative event for the world and the Dude is all for combating it right away, but it’s not at all clear that it will be a net-negative event for North American farmers. More to the point, if climate change does completely wipe out American agriculture, then the odds are pretty good that society itself has collapsed and we are all living in a completely fucked Mad-Max-style post-apocalyptic hellscape, in which case, honestly, does it really matter whether your investment choices were good or bad? Bottom line: By all means worry about climate change when you are voting, picking a vehicle, or directing your political donation dollars, but don’t sweat it so much when you are picking a farmland REIT.

DISCLOSURE: I own some FPI shares and will probably buy more in the relatively near future.