TI-I-I-MBER! The lumber company we’re going to tell you about today is growing two things: trees … and its dividend. Plus, it’s getting government help.
In a move intended to protect the domestic lumber industry, the U.S. promises to slap duties of as much as 31% on imports of timber from Canada. That country supplies more than a quarter of the wood that American builders use each year.
This tariff is a boon for American wood companies.
We can also add in the fact that the U.S. housing market is springing back. That’s boosting housing stocks — and the stocks of companies that make housing parts.
Timber, wood and paper are commodities often overlooked by investors. That’s a shame. Those investors are missing great stocks — and some nice payouts. You might say they’re missing the forest for the trees.
How You Can Invest
There is the iShares Global Timber and Forestry ETF (WOOD). It sports a moderate dividend yield, recently 1.4%. But let’s focus on WOOD’s largest holding, which pays a fat and growing dividend …
I’m talking about Weyerhaeuser Co. (WY). It has a market cap of around $26 billion. It is the largest forestland owner in the U.S., with ownership or control of 13 million acres. Last year, it acquired Plum Creek Timber. And that increased Weyerhaeuser’s timberland holdings by 85%.
Weyerhaeuser’s dividend yield is much more robust at 3.63%. Plus, the payout is projected to climb 5.84% per year over the next three years.
Weyerhaeuser’s estimated Q3 earnings are up 31% year-over-year. It should go to 30 cents per share this third quarter from 23 cents per share a year ago. And the company has beaten earnings estimate in the last five times out of eight. For the year, the company is projected to earn $1.05 per share, a 40% climb from last year.
The company has $701 million in cash and debt of $7.1 billion. That seems like a lot, but it’s small in comparison to Weyerhaeuser’s 13 million acres of forests. Timberland is 90% of its assets.
Free cash flow was $402 million in the second quarter. That’s a huge swing from a loss of $40 million in the first quarter.
Weyerhaeuser is a good investment for the long haul. Its rising dividend is the gift that keeps on giving.
Now, let’s look at the chart …
Here’s my recommendation.
Using 5% of your funds allocated to the Income section, buy Weyerhaeuser Co. (WY) at the market, to open. When filled, place a good-till-canceled protective stop at $25.88.
In the meantime, keep holding your Buckeye Partners LP (BPL) … Westlake Chemical Partners LP (WLKP) … GAMCO (GGN) … Goldman Sachs MLP and Energy Renaissance Fund (GER) … and Alerian MLP ETF (AMLP).
Most of these investments have enjoyed a great ride in the past month. The exception is Westlake, which took a tumble after it issued 4.5 million more units. The company says it will use this money to fund acquisitions. It’s already priced in, and the company continues to pay a hefty dividend. So, it’s a hold along with the rest.
