As dividend investors we are always on the lookout for future dividend growth opportunities as well as current income via relative high yield. Timber REITs are investment vehicles that can offer a current relative high yield while also being defensive in nature against rising inflation as it is a commodity based investment. A timber REIT is simply a Real Estate Investment Trust that owns income-producing properties such as timberland and forests for wood production and paper. Of course, the very nature of timber REITs make them very dependent on the homebuilding sector for a lot of their profits but they also have the luxury of postponing harvests should demand weaken from the homebuilding sector, and as timber ages and grows the resulting commodity only increases in value which puts timber REITs in a unique position. Let’s take a closer look at some of the more popular timber REITs and one industrial company that is also involved in the lumber and wood production sector.
We’ll start with the largest publicly traded timber REIT, Plum Creek Timber Co. Inc. (NYSE: PCL). PCL owns and manages timberlands in the United States and produces lumber, plywood and other wood products. Based in based in Seattle, Washington, PCL currently yields a healthy 3.90% with a relatively high PE of 36.25 which is still well below industry peers. Let’s take a look at PCL at a glance:
Profit margin: 14.38% ttm*
EPS 10 year average growth: 2.26%
Next in our assessment of timber REITs is Rayonier Inc. (NYSE: RYN). Like PCL, Rayonier Inc. produces lumber as well as cellulose plant fibers for the use in the manufacturing of cigarette filters, packaging, diapers, pads, wipes as well as LCD screens. Headquartered in Jacksonville, Florida and with global operations in the United States, Australia and New Zealand, RYN currently yields a very high 4.10% with a PE of 16.20.
Profit margin: 11.34% ttm*
EPS 10 year average growth: 18.69%
Continuing our timber REIT search is Potlatch Corporation (PCH). Potlatch Corporation owns and manages timberlands located in Arkansas, Idaho, Minnesota and Wisconsin. Headquartered in Spokane, Washington and producing primarily lumber, plywood, and particleboard for the homebuilding industry, PCH also leases land for hunting and other recreational activities. PCH is currently yielding 3.40% with a PE of 22.86.
Profit margin: 12.48% ttm*
EPS 10 year average growth: -0.23%
For those looking for some adventure in the timber REIT space you might want to welcome relative newcomer CatchMark Timber Trust, Inc. (CTT). In general, I do not like to focus on micro-cap stocks ($476.65M) for long term dividend investing as I find these smaller entities less stable than their larger brethren. Nevertheless, a few figures for those brave dividend investors.
P/E: N/A (forward PE 33.64)
Profit margin: -25.94% ttm*
EPS 10 year average growth: N/A
Finally, in the timber space, though not a REIT but still a major player in the lumber and wood production space is Weyerhaeuser Co. (WY). Headquartered in Federal Way, Washington, WY manages and owns licenses to forestland for the production of lumber, home building products, pulp and paper. WY is currently yielding a decent 2.80% with a PE of 32.89.
Profit margin: 8.21% ttm*
EPS 10 year average growth: 7.46%
Clearly, there are many choices when deciding to invest in the lumber and wood production sector. The popularity of REITs, in general, in many dividend growth portfolios suggests that these financial instruments deserve a place in various income producing portfolios. Using the figures above as a starting point for more research shows that Rayonier Inc. (NYSE: RYN) might hold that sweet spot for many dividend investors as it sports the lowest PE of the bunch along with the highest yield and ten year average EPS growth rate.
Do you hold any timber REITs in your dividend portfolio? Let me know below.
Disclosure: Long NONE
*ttm = Trailing Twelve Months