If you're attracted to interesting stories, both Monmouth Real Estate (NYSE: MNR) and Gladstone Land (NYSE: LAND) are worth looking at. However, given their unique situations, one of this pair looks like a more attractive long-term investment than the other. Here's why.
Monmouth Real Estate is an industrial-focused real estate investment trust (REIT) with 121 properties across 31 states. Its assets are located in or near key transportation hubs, and over 80% of its revenues come from investment-grade tenants. The yield is just shy of 4%, and the dividend has trended higher over time, though it hasn't been increased every year. That said, the REIT hiked the payout roughly 6% in January.
That dividend increase, however, comes with some strings attached. In December 2020, Monmouth received an unsolicited offer from a large shareholder that wanted to buy the REIT. In response, Monmouth is examining strategic alternatives to increase shareholder value. In short, Monmouth is "in play" right now, with an activist investor agitating for change. Some might find that appealing, but there's a big wrinkle.
Founder Eugene Landy is a major shareholder and currently the chairman of the board. Meanwhile, his two sons are both on the board of directors, and one is currently the CEO. The founding family exerts a material amount of control here, and while the outside investor is trying to shake things up, it will likely be an uphill climb to get anything done.
As an industrial REIT, Monmouth is interesting, given the growth that has occurred in the online retail space it helps serve. But when you layer on the current fight for control of the company, most investors will probably be better off with another REIT.
Gladstone Land's uniqueness comes from the properties it buys, which are all farms. Clearly, if you were looking at Monmouth because it's an industrial REIT, Gladstone Land probably isn't a good alternative. However, don't dismiss the farmland story out of hand, because it's fairly compelling.
That said, it isn't complex -- it's basic math. The world's population has continued to expand, while the amount of farmland has shrunk. That suggests the value of farmland is getting more and more dear, in general, over time.
Not all farms are created equal, however, which is why Gladstone Land focuses on vegetables, fruits, and nuts. These tend to be higher-value products that often serve only local markets because they're perishable. When it buys a property, the REIT generally likes to sign long-term leases, so its top and bottom lines are well-supported. So, too, is its dividend-paying ability, noting that the dividend has been increased steadily since 2014, though at a fairly slow rate.
The real opportunity here, however, is in portfolio growth. According to the REIT, roughly 85% of all U.S. farms are family-owned, with a significant number of owners nearing retirement. Selling to a third party is a quick way to raise cash for retirement needs or for heirs to cash out of the family business.
Gladstone specifically targets family-owned farms, using its stock as a way for owners to sell without having to feel the full brunt of the taxes a cash sale might cause. Further, if the seller wishes, Gladstone is happy to do a sale-leaseback transaction so the seller can still operate the farm. The REIT bought 26 farms in 2020 and has already inked three deals so far in 2021.
With a dividend yield of 2.9%, income-focused investors won't likely find this stock all that appealing, despite the monthly pay schedule. However, if you like the idea of owning farmland, a unique asset class with an appealing supply/demand profile, it could be worth a closer look. The story here, meanwhile, is more compelling than the uncertainty surrounding Monmouth right now.
Not for everyone
At the end of the day, both Monmouth and Gladstone Land are acquired tastes that probably won't be good fits for most investors. Monmouth is a special-situation stock, with an outside investor agitating for change against entrenched management. There are a number of ways that could turn out, and it's probably best to wait for the chips to fall before you jump in.
Gladstone Land, meanwhile, is playing a long-term trend in the farm space, but it's all about portfolio growth right now, not dividend yield or rapid dividend growth. Of the two stories, Gladstone Land's is the more compelling, but that won't be true if you are looking to maximize the income you generate.