Farmer Mac’s Preferred Stock: A Safe Harbor for Income Investors in a Rising Rate World

Amid a landscape of historically low yields and volatile equity markets, income-seeking investors face a critical dilemma: how to secure stable cash flows without excessive risk. The Federal Agricultural Mortgage Corporation’s Series D Preferred Stock (AGM.PR.D) emerges as a compelling solution, offering a 6.56% current yield—far above the paltry returns of Treasury bills and corporate bonds—while anchored to a mission-driven business model with a 40-year track record of resilience. For those willing to navigate the nuances of non-cumulative preferred stocks, this security presents a rare opportunity to lock in income at a time when the Fed’s rate hikes have squeezed traditional yield sources.

The Allure of AGM.PR.D’s Income Stream

The Series D preferred stock offers a fixed $0.35625 quarterly dividend, translating to a 5.7% annualized yield based on its $25 par value. However, the stock’s recent trading price of $21.71—a 13.16% discount to liquidation preference—has boosted its current yield to 6.56%, making it a standout performer in today’s yield-starved environment. This premium arises not from dividend growth but from market pessimism about preferred stocks in a rising rate regime. Yet for income investors, the July 17, 2025 dividend payout (payable to shareholders of record by July 1) represents an immediate reward for acting now.

Farmer Mac’s Fortress Balance Sheet and Mission-Driven Edge

Farmer Mac, a government-sponsored enterprise (GSE), plays a unique role in stabilizing rural America’s financial infrastructure. By securitizing mortgages for farmers, ranchers, and rural utilities, it enjoys a quasi-utility-like business model, insulated from the cyclical swings of urban real estate. Its capital ratios—Tier 1 leverage ratio of 12.6% as of Q1 2025—exceed regulatory requirements, and its $5.8 billion in retained earnings since 2000 underscore a culture of financial prudence. Unlike speculative tech stocks or leveraged real estate trusts, Farmer Mac’s operations are backstopped by a federal mission to serve agriculture, reducing the risk of abrupt dividend cuts.

Navigating the Non-Cumulative Risk

The non-cumulative feature of AGM.PR.D is its most contentious trait: if Farmer Mac skips a dividend, shareholders forfeit the missed payment permanently. Yet this risk is mitigated by two realities:
1. Dividend consistency: Farmer Mac has never missed a preferred stock dividend in its history, even during the 2008 crisis.
2. Regulatory incentives: As a GSE, Farmer Mac’s mandate to support rural communities creates a reputational imperative to maintain payouts.

Moreover, the July 17, 2024 call date has passed without redemption, meaning the stock is now perpetual, eliminating the risk of early call and reinvestment at lower rates.

Timing the Rally: Why Act Before July 1?

With the next dividend payment just weeks away, investors who purchase AGM.PR.D before the July 1 record date will secure the full $0.35625 payout, effectively earning a 2.63% quarterly return at current prices. This timing advantage is critical: preferred stocks often see price dips after ex-dividend dates, creating a “buy the dip” opportunity. Meanwhile, the stock’s $21.71 price appears disconnected from its $25 liquidation preference, offering a margin of safety if market sentiment improves.

The Case Against Rate Sensitivity

Critics may argue that rising interest rates penalize preferred stocks, as their fixed coupons lose appeal. Yet AGM.PR.D’s 6.56% yield already competes with the 5.5%+ rates on 10-year Treasurys, making it less vulnerable to further hikes. Additionally, its rural focus insulates it from the housing downturn risks plaguing traditional mortgage REITs.

Final Analysis: A Portfolio Staple for Yield Hunters

AGM.PR.D is not a speculative bet but a strategic income anchor for portfolios needing stable cash flows. Its 6.56% yield, unblemished dividend track record, and discount to liquidation value create a compelling risk-reward profile. While non-cumulative terms demand scrutiny, Farmer Mac’s institutional role and capital strength make this a low-risk, high-reward opportunity.

Investors should act swiftly: with the July dividend looming and the stock’s price already reflecting near-term pessimism, the window to lock in this outsized yield is narrowing. For those seeking income without chasing junk bonds or overvalued tech stocks, AGM.PR.D is a rare gem in today’s barren yield landscape. Buy before July 1 to secure the payout—and a piece of America’s agricultural future.