Blazing threats of global warming have raised panic alarms across the globe, leading to greater consciousness toward building up forestry. Probably this is why a single day has been accommodated since March 21, 2013, to honor the worth of forest reservation. Source: Nasdaq
Agreed, it is a socially-conscious idea, but the investing world has a lot to benefit from forestry. Many companies are engaged in the timber industry. The industry has a low or negative correlation with traditional asset classes. Including this asset class in one’s portfolio provides excellent portfolio diversification, resulting in low volatility of portfolio returns.
Investors might be surprised to know that timber ETFs like iShares Global Timber & Forestry ETFWOOD have easily surpassed broader market indices like the S&P 500 this year. The fund has gained more than 37% in the last one year (as of Mar 20, 2018).
Lumber prices have been benefiting from the supply crunch (due to last year’s wildfires in Canada’s British Columbia, the world’s top exporter of softwood lumber) and strained trade relations between Canada and the United States.
Last April, President Donald Trump announced a tariff of up to 24% on imports from the Canadian softwood lumber industry.
Amid rising prices, US builders are reported to be hoarding lumber ‘for what is expected to be one of the busiest construction seasons in years,’ according to Wall Street Journal.
Agreed, housing starts slipped 7.0% to a seasonally adjusted annual rate of 1.236 million units in February, but single-family projects rose for the second consecutive month.
Single-family housing units under construction witnessed the highest number in February since June 2008. With single-family homebuilding making up the largest pie of the housing market, the timber industry definitely has a reason see price escalation.
Moreover, profits from harvesting wood are subject to low-taxed capital gains. This makes shareholders in forest product companie organized as REITs enjoy higher current income. Weyerhaeuser Company REITWY yields about 3.60% annually while Catchmark Timber Trust Inc ‘s CTT dividend yield is 4.24% (as of Mar 20, 2018).
Given this upbeat backdrop, we have highlighted a few timber-related stocks that investors could consider for a greener portfolio. All stocks come from a top-ranked Zacks industry (top 4%).
Louisiana-Pacific Corporation LPX
This Zacks Rank #1 (Strong Buy) company manufactures building materials and engineered wood products in the United States, Canada, Chile and Brazil. The stock has a VGM (Value, Growth, Momentum) of B.
Universal Forest Products Inc. UFPI
It is a holding company of businesses that form one of the largest producers of wood and wood-alternative products in North America. It has a Zacks Rank #2 (Buy).
Rayonier Inc. RYN
It is a timberland real estate investment trust with assets located in some of the most-productive timber growing regions in the United States and New Zealand. It has a Zacks Rank #2.
Potlatch Corporation PCH
This Zacks Rank #1 company is a Real Estate Investment Trust with timberlands in Alabama, Arkansas, Idaho, Minnesota and Mississippi.
Boise Cascade L.L.C. BCC
This Zacks Rank #1 company operates as a wood products manufacturer and building materials distributor. The stock has a VGM of A.