Planting Dividend Seeds With Timber REITs

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:

P/E: 36.25
Yield: 3.90%
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.

P/E: 16.20
Yield: 4.10%
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.

P/E: 22.86
Yield: 3.40%
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)
Yield: 3.70%
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.

P/E: 32.89
Yield: 2.80%
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

Image courtesy of: Sira Anamwong at FreeDigitalPhotos.net

35 thoughts on “Planting Dividend Seeds With Timber REITs

  1. Very interesting, DivHut. Thanks for putting this together. Timber is a huge source of business and exports here in Canada and always makes the news – but I hadnt done any research on them and didnt know that you can invest in em as a REIT. I will have to read up more on the ones you have shortlisted.

    cheers
    R2R
    Roadmap2Retire recently posted…Chatter Around the World – 57My Profile

    • Hi R2R,

      There’s no doubt that timber is a huge industry in North America especially with all the home building that has been going on the last 20 years or so. Timber REITs are not as popular as many of the commercial or health REITs that exist and don’t seem to get as much attention either. Timber is unique in that it is a commodity that can appreciate in value during times of high inflation. Other REITs do not share that characteristic. Thanks for commenting and look at RYN and PCL.

    • Hi Tawcan,

      Timber REITs are a different way to play the real estate game for sure. What I like about them, as I mentioned, is their ability to provide a hedge against inflation as they are all commodity based and as inflation rises, so do commodities in general. Forest and timber land are very finite resources and almost every segment of the economy depends on their resource. RYN seems to have the best balance between current yield, growth and valuation. Thank you for stopping by.

    • Hi rickack,

      I am happy to have given you some inspiration regarding timber REITs. A couple of the REITs mentioned are very stable (RYN & PCL) and have been paying dividends for a long, long time. Typically, people, as you said, buy “normal” REITs which simply means they stick to commercial, industrial or residential REITs without considering the timber space. It is a sector of the economy that supplies many other industries besides home builders and paper companies plus provides a good inflation hedge. Thank you for stopping by and commenting.

  2. Keith,
    Another one of your articles were I start out going, “a what?” I had not heard of timber REITs before, but your write-up makes it clear what they are and how they could be added to a portfolio.

    I also agree with your analysis that RYN might be interesting. The others don’t seem to be fairly valued in comparison.
    Thanks,
    Keith

    • Hi Keith,

      Glad I could enlighten you with a REIT segment that you have not heard of before. I’m not sure why timber REITs aren’t as popular as some of the other REITs, though I suspect yield might have something to do with it. Like commercial, industrial and residential REITs, the mantra of “they aren’t making any more land” certainly holds true for timber REITs as well. Lumber, forest and paper/pulp products are commodities that will be in demand for the foreseeable future. The question then begs which timber REIT to consider. For my money I’d look at RYN or PCL. RYN seems to have it all in terms of current yield and growth.

      This is what I like about blogging and reading other blogs… you get introduced to stocks, themes and investment vehicles that you may never have heard of. As always, appreciate you stopping by.

    • Hi RBD,

      That’s why we blog. To inspire and educate others. I’m glad you enjoyed this post and find these stocks potentially interesting. As I mention, this is a short list of select timber REITs that are good starting points for more research before investing. It seems that many did not even know these type of REITs even exist. I thought it would be a good idea to highlight some of the lesser known REITs as we tend to focus too much on just commercial, industrial, residential and health REITs. Thank you for commenting.

  3. Man, you learn something new every day. I didn’t even know that timber REITs existed – totally thought those were strictly applied to just real estate – just buildings.

    I may take a look at RYN.

    Thanks for the info!
    Seraph recently posted…Recent BuyMy Profile

    • Hi Seraph,

      Happy to educate and introduce a new type of financial vehicle for you. Timber REITs are definitely interesting ways to place real estate. Most people don’t know you can buy a piece of a forest with these stocks. RYN and PCL are the big boys of this space. I appreciate you stopping by and commenting.

  4. Divhut

    Like many of the above posters have said, I never even thought to think abut a timber REIT. Very cool, and the more i think about it it seems like these types of REITs have some good security over the long term seeing as how they capitalize in a sector which produce renewable resources and have clients outside of North America. Thanks for sharing some out of the box thinking Divhut.

    Ace
    Dividend Digger recently posted…Historically Low Mortgage Rates and I still Refuse to Buy a HomeMy Profile

    • Hi DD,

      Thank you for the compliment regarding my recent post. Sometimes it pays to think outside the box and timber REITs definitely qualifies as outside thinking. I happen to agree with you about the appeal of an industry that works with a finite amount of land in a space that offers a renewable resource. There’s no doubt that timber REITs offer an interesting income opportunity while also being a potential inflation hedge. I appreciate your comment.

    • Hi LAH,

      Thank you for the compliment. I’m glad I can give timber REITs some exposure to the dividend investing community. Thank you for stopping by.

  5. I’d heard of WY and PCL before but never really looked into them. It’s a bit surprising to me to see how low the starting yields are on average. I hadn’t thought of the timber REITs being a quasi-commodity play though. I’m curious how much their performance is tied to the underlying commodity as in how bad were they hurt in the real estate bubble burst? Interesting ideas to start further research though.
    JC @ Passive-Income-Pursuit.com recently posted…Recent BuyMy Profile

    • Hi PIP,

      From the companies mentioned in the article WY, PCL and RYN seem to be the “big boys” in the lumber and paper space. As you mentioned, these REITs differ from many of the “standard” real estate plays as these companies own land but also produce a commodity that is price sensitive. This is why these types of REITs, should you want real estate exposure in your portfolio, can be interesting as inflation will inevitably rear its ugly head and cause prices of all commodities to jump. There’s no doubt that the performance of these types of REITs are heavily tied to their underlying commodity, timber. I still think RYN is an interesting play for more research. Thank you for stopping by and commenting.

    • Hi DM,

      Glad you found this latest piece useful. RYN seems to be my favorite from the bunch and is a good place to start researching before potentially making a purchase. I know many of the dividend bloggers like REITs but no one ever talks about the timber space. Thank you for stopping by.

    • Hi Untemplater,

      It’s so true as I’m sure many of us feel that there are so many great investment opportunities yet so little capital to go around. I hope, at the very least, this article will open the eyes of many of the dividend bloggers and show that REITs come in all shapes and sizes, not just shopping centers, apartments or hospitals. I appreciate your comment.

    • Hi DD,

      No problem. Keep me updated and I look forward to seeing your full portfolio of holdings. Keep up the good work on your end 🙂

  6. Gotta love the availability of specialty REITs to diversify your income! They range from the ‘usual’ Office, Commercial, apartment/housing to more specialized like your Timber REIT, or healthcare, entertainment(Cineplex) and retirement home specific REITs. Lots of places to look for diversified monthly income 🙂

    • Hi DW,

      Your comment rings true. REITs have many flavors and styles and can offer great real estate diversification for anyone looking. The one thing that sets timber REITs apart from the rest are that they own real estate and a commodity. Thank you for commenting.

    • Hi HHaWG,

      Of the the various timber REITs mentioned RYN seems to possess all the long term qualities a dividend growth investor is looking for. You are the first person to share a timber REIT holding with me. Most of the other bloggers didn’t even know this type of REIT even exists. Thanks for sharing and look forward to your investment updates as well.

  7. Div,

    I learn something new every time you post something! (I guess that’s sort of the point, eh?)

    So two things. One, what’s to stop someone from completely copying your portfolio and sort of riding your coat tails to success? And two, this makes me want to write a program to help me determine company value given the factors you listed along with a projection given the average slope of the stock value. I’m sure this has been automated in a million places, but it doesn’t change the fact that I’d like to dive in a bit.
    FI Monkey recently posted…On Being OriginalMy Profile

    • Hi FIM,

      Glad you are finding value in my posts. I like to write a lot of general, easy to read blog posts about dividend investing often broken down into different sectors. With REITs being so popular these days I thought I would re-tweet an older post I wrote about lesser known timber REITs. Most investors know about residential, retail, industrial and health REITs but not many know of timber REITs. Who knew you could invest in forests?

      I always maintain that dividend investing does not have to be difficult. Look what’s around you as a starting point for potential investment ideas. Look in your bathroom, breakfast table or laundry room even for ideas. I encourage you to continue browsing DivHut for more unique dividend investing ideas.

      To answer your questions I have no problem with anyone completely copying my portfolio. There is nothing proprietary about it and I always encourage anyone to do their own research first rather than just follow along blindly. Everyone is in a different financial situation and what I am comfortable investing in and holding may not suit other individuals. My results speak for themselves as I publish my portfolio and dividend income monthly. You can see first hand my performance in each stock I hold for better of worse.

      I am not a registered investment adviser, investment professional, brokerage firm or investment company. Just a regular guy on a dividend growth journey. I’m happy that you have really jumped on board the dividend growth train and can see the value in this investment strategy. If you want to write a program to help you determine company valuations then by all means go for it. It may give you greater insight before deploying your cash in a specific stock or sector. Read, learn and ask questions and before you know it you’ll be diving in the dividend growth pool. Thank you for commenting.

    • Hi DC,

      With REITs being so popular these days, because of their recent price declines and resulting high yields, many forget that there are a multitude of different REITs out there. We tend to focus exclusively on the retail, health and industrial REITs but there also exist great opportunities in apartment, timber and even individual housing REITs. In fact, there are REITs that only buy ‘entertainment’ related real estate parcels such as movie theaters and golf courses. Glad you enjoyed this little overview. Thank you for commenting.

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