Yesterday, Jay at Thinking Wealthy published an article on alternative investments (Thanks for the inspiration, Jay). This article is quite timely as the topic has been on my mind for a while. With the stock market hitting all-time highs and the lack of easy value pickings, I have been spending my time reading and exploring alternative investment ideas.
So what are alternative investments? The classic definition of alternative investment is an investment in asset classes other than stocks, bonds and cash. This can include investments in gold, jewelry, real estate, private equity, art pieces etc.
Real estate is probably the most common alternative investment form used by many. But since my wife and I just bought our house this summer, we think buying a second investment property will have to wait a few years. However, that hasn’t stopped me from doing my research and learning about other investment opportunities out there.
I recently read and reviewed a book on the business of global warming called Windfall from McKenzie Funk. While the book was hugely entertaining, it provided with a lot of investment ideas. Due to the time scale at which the global climate events occur, it makes for a great seed for investing for the long term.
One of the main takeaways from the book was an investing theme centered around food. Taking into consideration that the world population is continued to grow for the next few decades (with a target of 8.3 o 10.9 billion by 2050 according to UN), the case for food demand is pretty solid. The author delves a bit deeper into how some investors are moving fast to grab farmland in Africa, Eastern Europe and Canada. This set off some of the proverbial bulbs in my head – and its a topic that Ive been researching over the last few weeks.
I also met a maple syrup farmer (is farmer the right word?) at a party recently, and speaking from first-hand experience, he was telling me how the business is facing immense pressure from overseas money – Chinese investors are willing to pay a handsome premium on the property and farm values, but unfortunately for them – Canada has very conservative laws associated with owning farmland. While I was reading Windfall, I also started exploring ideas on buying farmland in the Canadian provinces of Saskatchewan. Saskatchewan has a long history of being a great place for farming with plenty of fertile land. Fellow blogger Freedom 35 bought farmland in Saskatchewan and his investment has paid off handsomely (Canadian farmland values have risen 29% in 2013). However, it has to be noted that there are lots of restrictions in place when it comes to buying farmland in Saskatchewan. The buyers needs to be a Canadian citizens! An individual can own Saskatchewan farmland directly, but so can other “entities” as long as they are 100% Canadian-owned and not publicly traded. This point makes it is hard for Canadian farmland REITs to go public while owning Saskatchewan farmland. Full details can be found here. The restrictions described here mostly pertain to farmland only in the province of Saskatchewan. Most other provinces have either no limitation or minimal restrictions.
For now, my only exposure to food is through stocks in companies such as Agrium Inc (AGU.TO) and Archer Daniels Midland (ADM). Agrium is a fertilizer company that specializes in a wide variety of products including the three main necessities in crop growth and health – Nitrogen, Phosphate and Potash. Agrium’s main market is industrial and commercial agriculture. Agrium has been paying dividend since 1999, raised dividends for 4 years in a row and has a 5-yr dividend growth rate of 90.5%,. Archer Daniels Midland is one of the world’s leading agribusinesses that manufactures and sells food essentials, processed agricultural products and value-added feed ingredients. ADM is a dividend champion that has been paying dividends since 1927, raised dividends for 39 years in a row and has a 5-yr dividend growth rate of 7.9%.
Full Disclosure: Long AGU.TO, ADM. My full list of holdings is available here.
Image source: Freedigitalphotos.net/David Castillo Dominici