Federal Agricultural Mortgage Corporation, affectionately known as Farmer Mac ( <a href="https://seekingalpha.com/symbol/AGM" title="Federal Agricultural Mortgage Corporation" alt="AGM">NYSE:AGM</a> ), doesn't exactly scream excitement. It's a government-sponsored enterprise (GSE) lending to farmers, ranchers, and rural utilities. Think tractors, power lines, and maybe a very slow-moving combine harvester. Yet, buried within Farmer Mac's recent Q1 2024 earnings call lies a clue that this "boring" dividend stock might be sitting on a powder keg of growth: the potent combination of pool purchases and securitization.

While most analysts focused on the predictable trends of net effective spread and dividend increases, a crucial strategic shift was quietly revealed. Farmer Mac's CEO, Brad Nordholm, casually mentioned that the company's internal operational expertise in securitization was now "overlapping" with its ability to execute pool purchases. <a href="https://seekingalpha.com/article/4629386-farmer-mac-agm-ceo-brad-nordholm-on-q1-2024-results-earnings-call-transcript" alt="AGM Q1 2024 Transcript">[1]</a> This isn't just a technical detail—it's a fundamental change in how Farmer Mac can access and deploy capital.

Let's unpack why this is so significant. Pool purchases are exactly what they sound like: Farmer Mac buys up large blocks of loans from agricultural lenders. This benefits the lenders by freeing up capital and enhancing liquidity, especially in a tighter credit environment. Historically, Farmer Mac relied on its own balance sheet to fund these purchases, limiting the size and frequency of these transactions.

Securitization, on the other hand, allows Farmer Mac to bundle these loans into mortgage-backed securities and sell them to investors. This does two things: it frees up Farmer Mac's balance sheet to buy even *more* loans, and it taps into a vast pool of institutional capital hungry for stable, high-quality investments.

The evidence of this strategic shift is already emerging. In Q1, Farmer Mac acquired a $57 million pool of farm and ranch loans from a single lender. <a href="https://seekingalpha.com/article/4629386-farmer-mac-agm-ceo-brad-nordholm-on-q1-2024-results-earnings-call-transcript" alt="AGM Q1 2024 Transcript">[1]</a> This might seem like a drop in the bucket compared to their $28.5 billion portfolio. But consider this: it's the largest pool purchase Farmer Mac has made in years, and it happened in a quarter marked by bank liquidity concerns and the tightening of credit conditions.

This is just the beginning. The CEO explicitly stated that "pool purchases within the agriculture finance and rural infrastructure lines of business can serve as important opportunities for volume generation over the next few years." <a href="https://seekingalpha.com/article/4629386-farmer-mac-agm-ceo-brad-nordholm-on-q1-2024-results-earnings-call-transcript" alt="AGM Q1 2024 Transcript">[1]</a> Couple this with Farmer Mac's proven ability to execute securitizations—their fourth successful FARM series transaction just closed in April—and the potential for rapid growth becomes clear.

Here's where the hypothesis gets truly interesting. If Farmer Mac can leverage securitization to aggressively pursue pool purchases, their outstanding business volume could potentially grow at a significantly faster rate than the modest single-digit increases seen in recent years. Imagine a scenario where they execute just *two* $57 million pool purchases per quarter, funded through securitization. That alone would translate to an additional $456 million in annual volume, a growth rate of roughly 1.6%.

Now, factor in the potential for larger pool purchases, the continued growth of their renewable energy and telecommunications portfolios (which are also prime candidates for securitization), and the broader trend of banks seeking capital efficiency. Suddenly, double-digit annual volume growth for Farmer Mac starts to seem not just possible, but probable.

But what does this mean for investors? Remember, Farmer Mac's core earnings are largely driven by net effective spread, which is the difference between the interest they earn on loans and the interest they pay on debt. More volume, especially in higher-spread segments like renewable energy, translates to more earnings.

This, in turn, supports Farmer Mac's impressive track record of dividend increases. They just announced a 27% bump to their quarterly dividend, marking the 13th consecutive year of increases. <a href="https://seekingalpha.com/article/4629386-farmer-mac-agm-ceo-brad-nordholm-on-q1-2024-results-earnings-call-transcript" alt="AGM Q1 2024 Transcript">[1]</a> With the potential for a volume surge fueled by pool purchases and securitization, Farmer Mac could be on the verge of supercharging both its earnings and its dividend growth, transforming it from a "slow and steady" stock into a surprisingly powerful wealth-building engine.

Net Effective Spread Trends

The following chart shows Farmer Mac's Net Effective Spread (NES) over the past 5 quarters, based on information from the Q4 2023 and Q1 2024 earnings calls. <a href="https://seekingalpha.com/article/4581447-farmer-mac-agm-ceo-brad-nordholm-on-q4-2023-results-earnings-call-transcript" alt="AGM Q4 2023 Transcript">[2]</a> <a href="https://seekingalpha.com/article/4629386-farmer-mac-agm-ceo-brad-nordholm-on-q1-2024-results-earnings-call-transcript" alt="AGM Q1 2024 Transcript">[1]</a>

"Fun Fact: Did you know that Farmer Mac's loan portfolio has an average loan-to-value ratio of just 50%? This means that, on average, the farms and rural properties backing their loans have *twice* the value of the outstanding debt, providing a substantial cushion against potential credit losses."