With homebuilding stocks on a tear over the past 12 months, what are some other industries that could be big benefactors from the surge in housing? Source: Seeking Alpha
The big three timber Real Estate Investment Trusts (REIT) – Rayonier (RYN), Plum Creek Timber (PCL) and Weyerhaeuser Company (WY) – all have their respective exposure to the core timber and housing market, but the inner-workings of each company makes them solid investments in their own right.
They all also pay dividend yields in excess of 2.5%.
Plum Creek Timber is one of the largest owners of private timberland in the US and pays the highest dividend yield of the three at 3.3%.
The company produces lumber and plywood at various wood products manufacturing facilities in the Northwest. The fact that Plum Creek is such a large operator helps the company capitalize on large economies of scale and provides operational flexibility.
Plum also has a couple of key initiatives. Back in early 2013 the REIT entered a 10-year agreement with UK-based Drax to supply up to 770,000 tons of wood fiber.
The company also entered in a deal with Vulcan Materials (VMC) where it will receive royalty payments from the production and sale of crushed stone mined from the quarries for the next 25 years located on certain properties owned by Plum Creek.
One of the long-term catalysts for the company should be the unlocking of the inherent value held in its land holdings, and we expect real estate to become a rising source of earnings in coming years.
The company plans to develop some 75,000 acres of land over the next 15 years.
Although the price for timber is expected to be up this year thanks to rising demand from a recovering housing market, Plum Creek does not plan to increase its production this year.
Weyerhaeuser is one of the leading US forest product companies with operations focused in Southern California, Nevada, Washington, Texas, Maryland and Virginia, and paying a 2.5% dividend yield.
Much like the other timber REITs, Weyerhaeuser grows and harvests trees, builds homes, and manufactures forest products worldwide, primarily for use as lumber, pulp and paper, and other wood and building products.
Unlike Rayonier, which gets the majority of its revenue from its fiber segment, Weyerhaeuser’s top segment is wood products, generating over 40% of revenues.
Its cellulose fibers segment accounts for over 25% of revenues, timberlands around 15% and real estate 15%.
For the first quarter, Weyerhaeuser posted EPS results of US$0.26, compared with US$0.08 for the prior-year quarter, and blowing past consensus of US$0.22. Sales are expected to be up 20% in 2013, and another 15% to 20% in 2014.
Weyerhaeuser has been divesting assets to focus on its timber, wood products, real estate and fiber businesses.
During 4Q 2012, the company disposed its non-strategic land in San Diego for US$65 million in earnings.
Rayonier pays a 2.9% dividend yield. Rayonier’s key segment is performance fibers segment, making up 70% of 2012 total sales and 80% of operating income. This segment manufactures high-performance cellulose fibers and absorbent fluff pulp.
Meanwhile, its timber business accounts for 15% of revenues, which buys and manages timberland.
Upcoming revenue growth should be driven by the conversion of capacity to higher value cellulose specialties from fluff pulp. The price of cellulose specialties, used in cigarette filters and textiles, are expected to increase 2% to 3% this year.
