There are many ways for investors to profit from rising global populations, such as agriculture stocks. Agriculture has been a hot topic for years as the population rises and middle classes expand around the world.
Rising global populations have huge implications for the future of the global economy. The simple reality is that populations continue to rise around the world, but there is only so much available farmland for food production. This creates a significant investment theme that could power returns for the agriculture stocks that underpin the companies working to solve this problem.
Population growth has slowed materially in recent decades, but the world is still growing at a rate in excess of 1% annually. While a decline in the population growth rate has lessened the impact on the food supply, there are other considerations.
For instance, the amount of land available for farming remains just a tiny fraction of the earth’s surface. This means that as the world’s population grows, this land must be more productive in order to maintain the current food supply and grow to meet future demand.
In addition, the growing middle class of the world’s developing economies means diets are changing, including more meat products, which take up exponentially more land per serving than vegetables or eggs, for instance.
While none of these factors is necessarily worthy of alarm on their own, in confluence, they can make it such that the world’s food supply becomes stretched in the coming decades as the global population rises.
The following 3 agriculture stocks are working to solve the looming food crisis facing the globe due to rising populations. These stocks are registering impressive growth, and shareholders are benefiting from higher share prices and dividends.
- The Scotts Miracle-Gro Company (NYSE:SMG)
- Gladstone Land Corporation (NASDAQ:LAND)
- Deere & Company (NYSE:DE)
Agriculture Stocks: The Scotts Miracle-Gro Company (SMG)
Our first of the tip agriculture stocks is the Scotts Miracle-Gro Company, which manufactures, markets and sells consumer lawn and garden products. Most of its business is in the U.S., but the company has a small global presence.
Scotts is famous for its lawn care products, but it offers a wide array of other agricultural products, including pest control, fertilizers, soil, plant food and much more.
Scotts stands to gain from a rising global population because its products are used every day both in growing food and in ancillary tasks related to food production, including things like weed control. In addition, Scotts has proven adept in the burgeoning world of cannabis production, where its products help growers cultivate more productive crops.
These and other tailwinds are all related to making a plot of land more productive than it otherwise would be, which fits in perfectly with the investing theme of higher populations and the lower relative availability of farmland.
SMG has had very impressive growth in recent periods as a result. For example, in the most recent quarter the company’s sales more than doubled.
Looking forward, we see Scotts as producing long-term earnings-per-share growth of 5% annually, with similar rates of dividend growth. Scotts has increased its dividend for 11 consecutive years, and we see many years of dividend increases ahead, aided in part by the investing theme of rising populations.
Gladstone Land Corporation (LAND)
Our next stock is Gladstone Land, a real estate investment trust (REIT) that focuses on leasing farmland in the U.S.
Gladstone acquires farmland and farm-related properties in major agricultural markets, with the current portfolio at nearly 130 farms, valued at about $1 billion.
The trust’s farms are generally located in areas that can support year-round farming, focusing on crops such as berries and vegetables, as well as orchards that contain products like almonds, apples, or olives.
Gladstone stands to gain from a rising global population because the kind of farms it owns and leases continue to be in short supply, which only will be exacerbated in the coming decades. This means that not only will the land that Gladstone owns become more valuable, but the prices it will be able to charge for lessees to use the land should rise as well.
We expect this and other factors to drive 5% annual FFO-per-share growth over the long-term. We expect a more modest 3% annual dividend growth given that Gladstone is a REIT and already distributes most of its income to shareholders. Still, we see it as a strong play for a world with the need for more productive farmland.
Deere & Company (DE)
Deere & Company is a manufacturer and distributor of heavy equipment worldwide. It sells broad and deep catalogs of equipment for agriculture and turf applications, construction and forestry and others. In addition, it has a large financial services business.
Deere stands to gain from a rise in global populations because its products help farmers make the most of their land. Deere’s agricultural catalog includes its famous tractors, combines, harvesters, planting and seeding equipment, and more. Deere stands to gain via higher equipment sales, which then provides service and maintenance revenue after the sale is complete.
These tailwinds are currently providing Deere with excellent growth. In the most recent quarter, sales came increased 19.4% year-over-year to $9.11 billion, while earnings-per-share more than doubled.
We currently expect Deere to produce 3% annual growth from what is an extremely high base of earnings for 2021 at $15 per share. We see the growth outlook for Deere as strong, but also that the company is accruing a huge benefit from a resurgence in the global economy in 2021.
On the other hand, we see robust 7% annual dividend growth from Deere, partly because the growth outlook for the company is attractive, but also because the company only pays about 20% of its annual earnings-per-share to shareholders via dividends.
On the date of publication, Bob Ciura did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Bob Ciura has worked at Sure Dividend since 2016. He oversees all content for Sure Dividend and its partner sites. Prior to joining Sure Dividend, Bob was an independent equity analyst. His articles have been published on major financial websites such as The Motley Fool, Seeking Alpha, Business Insider and more. Bob received a bachelor’s degree in Finance from DePaul University and an MBA with a concentration in investments from the University of Notre Dame.