Federal Agricultural Mortgage Preferred Stock: A High-Yield Opportunity Ahead of October's Call Date

The agricultural sector is a pillar of economic stability, and Federal Agricultural Mortgage Corporation (Farmer Mac) has long been its financial backbone. For income-focused investors, the 5.25% Non-Cumulative Preferred Stock, Series F (AGM.PRF), presents a compelling opportunity today. Trading at a steep discount to its liquidation value and offering a 6.8% yield, AGM.PRF stands out amid rising interest rates and market volatility. With a critical call date approaching in October 2025, now is the time to act.

Why AGM.PRF Is Undervalued

AGM.PRF currently trades at $19.29, a 22.84% discount to its $25 liquidation preference. This discount reflects market skepticism about preferred stock valuations in a rising rate environment, but it also creates a rare entry point. Historically, preferred stocks tend to narrow their discount to par value as their call dates near, as issuers often redeem them to refinance at lower rates. With AGM.PRF's call date just four months away (October 17, 2025), this gap is poised to close, offering investors both income and capital appreciation potential.

The Case for High Yield and Stability

The stock's 6.8% current yield is eye-catching, especially compared to the broader preferred stock market, which averages around 5.5%. This yield is supported by Farmer Mac's strong fundamentals:
- Consistent Earnings: Farmer Mac, a government-sponsored enterprise (GSE), has a 35-year track record of profitability, backed by its role in providing mortgages to farmers and rural housing projects. Its 2024 net income rose 8% year-over-year, even amid macroeconomic headwinds.
- Rural Sector Growth Drivers: The U.S. Department of Agriculture projects steady demand for rural housing and agricultural lending through 2030, buoyed by climate resilience initiatives and aging farmland transitions.
- Dividend Track Record: Despite being non-cumulative, AGM.PRF has never missed a dividend payment since its issuance in 2020, underscoring Farmer Mac's conservative risk management.

The Call Date Catalyst

October 17, 2025, is the linchpin of this investment thesis. On that date, Farmer Mac can redeem AGM.PRF at par ($25 per share). Here's why this creates urgency:
1. Price Appreciation Potential: As the call date approaches, the stock price will trend toward $25 to eliminate the discount. Investors holding until October could see a ~30% capital gain if the discount closes fully.
2. Dividend Safety: The final dividend payment (due October 17, 2025) is secured, as Farmer Mac has no incentive to skip it before redemption.
3. Risk Mitigation: The call date removes uncertainty about indefinite holding, making AGM.PRF a finite opportunity to lock in high yield.

Addressing Risks

Critics may point to AGM.PRF's non-cumulative status—a key risk if dividends are suspended. However, Farmer Mac's history of prioritizing preferred dividends and its GSE status (with implicit government backing) reduce this likelihood. Additionally, the stock's perpetual nature is balanced by the near-term call date, limiting downside.

Investment Recommendation

For income seekers and strategic traders, AGM.PRF offers a rare trifecta: high yield, discounted pricing, and a defined catalyst. The stock's 6.8% yield alone justifies a position, but the October call date adds a time-sensitive premium. Investors should act now to:
- Capture the 6.8% yield, with the next dividend ex-date on July 1, 2025.
- Benefit from narrowing discount, as the stock converges toward $25 by October.
- Avoid missing the final dividend before redemption.

Final Thoughts

AGM.PRF is a hidden gem in the preferred stock universe. Its valuation discount and impending call date create a high-conviction entry point. With Farmer Mac's stable earnings and the rural sector's long-term tailwinds, this is an opportunity to secure income and capital gains in a structured, low-risk package. Act before October—when the clock runs out, so will this compelling discount.

Disclaimer: Always conduct your own research and consult a financial advisor before making investment decisions.