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3 food shares for investors hungry for growth

Food has been an essential commodity since time began. As the global and Australian population increases, there will be an increasing demand for food which will likely allow for increased production and increased food prices.

Wesfarmers Ltd (ASX: WES) and Woolworths Limited (ASX: WOW) are slowly decreasing their profit margins to compete with the likes of Aldi, but the actual producers of the food can still increase their profits.

Here are four stocks to benefit from the dining boom over the years ahead:

Costa Group Holdings Ltd (ASX: CGC)

Costa Group is a fruit and vegetable producer with a market capitalisation of $1.07 billion.

It has four main food segments: mushrooms, berries, citrus and tomatoes. This diversified food approach is working for Costa so far, in FY16 it grew pro forma revenue by 11.8% and pro forma net profit after tax by 11.8%.

As the world slowly turns to a healthier diet, Costa’s produce will become more in demand here and in its international export countries.

Costa is trading at 41x FY16’s earnings with a dividend yield of 3.84%.

Tassal Group Limited (ASX: TGR)

Tassal is Australia’s largest salmon farmer with a market capitalisation of $600 million.

Most of Tassal’s success is based on its domestic division in Australia and it could keep growing as Australians change their food palette.

In its latest results Tassal revealed operating profit had increased by 8.3%, which allowed it to increase its dividend by 7.1%.

Tassal recently acquired De Costi Seafoods, turning it from a pure salmon farmer into a more general seafood supplier. It remains to be seen if this was the right move, but at least it has added diversification to Tassal’s earnings.

Tassal is trading at 13.5x FY17’s estimated earnings with a fully franked dividend yield of 3.76%.

Rural Funds Group (ASX: RFF)

Rural Funds Group is a farmland real estate investment trust with a market capitalisation of $331 million. It has been a great investment for shareholders since it listed in February 2014, with the share price growing by 113% from February 2014 to today.

Rural Funds Group has a diverse array of farms that it rents out including almonds, vineyards, cotton and cattle which are spread over a variety of states and climate conditions.

It’s currently trading on a forward dividend yield of 6% for FY17.

Time to buy?

I think all three of these businesses could be reliable long term growth stories. Out of the three, Rural Funds Group is my favourite because I think demand for limited farmland will make the rental yields grow higher over time and Rural Funds Group has the potential to buy a lot more farms.

These 3 stocks could be the next big movers in 2020

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Motley Fool contributor Tristan Harrison owns shares of RURALFUNDS STAPLED. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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