As the result of the Russia-Ukraine war and supply chain disruptions, lumber prices have been surging. Since Russia’s invasion, lumber prices have climbed 14% to $1,452, just 15% below the all-time peak. And according to Joshua Dean from the Greater Birmingham Association of Home Builders, soaring gasoline prices have increased transportation cost for materials, further pushing lumber prices higher.
Amid skyrocketing inflation and other macro headwinds, lumber REITs are strong investments considering their ability to provide diversification benefits and shield investors from the rising inflation. Also, REIT investments are ideal in the current bear market because REITs are required to pay out 90% of their income in the form of dividends.
Thus, we think it could be profitable to invest in quality lumber REITs Weyerhaeuser Company (WY), Rayonier Inc. (RYN), and PotlatchDeltic Corporation (PCH) now.
Weyerhaeuser Company (WY)
WY is one of the world’s leading private owners of timberlands. The Seattle. Wash.-based concern owns approximately 11 million acres of timberlands in the U.S. and manages additional timberlands in Canada under long-term licenses. WY is one of the largest manufacturers of wood products in North America. The timberlands are managed on a sustainable basis in compliance with internationally recognized forestry standards.
Last month, WY declared a quarterly cash dividend of $0.18 per share on its common stock, representing a 5.9% rise from the prior quarterly dividend of $0.17 per share. "We continue to believe our dividend framework, combined with opportunistic share repurchase, will enhance our ability to drive long-term shareholder value by returning meaningful amounts of cash back to shareholders across a variety of market conditions," said Devin Stockfish, President and Chief Executive Officer.
In its fiscal 2021 fourth quarter, ended Dec. 31, 2021, WY's net sales increased 6.9% year-over-year to $2.21 billion. WY’s net cash from operations grew 11.3% year-over-year to $494 million. Its adjusted EBITDA rose marginally year-over-year to $674 million. And its net earnings grew 42.5% year-over-year to $416 million. The company's FFO increased 41% from the year-ago value to $0.55.
The $2.72 billion consensus revenue estimate for its fiscal year 2022 first quarter, ending March 32, 2022, represents 8.6% year-over-year growth from the same period in 2021. The $0.93 consensus FFO estimate for the current quarter indicates a marginal year-over-year rise from the prior-year period.
Shares of WY have increased 16.6% in price over the past year and 11.9% over the past six months. It closed Friday's trading session at $39.99.
WY's POWR Ratings reflect this promising outlook. It has an overall B rating, which translates to Buy in our proprietary system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
WY has a B grade for Value, Sentiment, and Momentum. Within the REITs - Diversified industry, it is ranked #2 of 51 stocks. To see additional POWR Ratings (Growth, Quality, and Stability) for WY, click here.
Rayonier Inc. (RYN)
RYN in Jacksonville, Fla., is a leading timberland real estate investment trust with assets located in the softwood timber growing regions in the U.S. and New Zealand. The company-owned and leased more than 2.7 million acres of timberlands under long-term agreements located in the U.S. South, U.S. Pacific Northwest, and New Zealand. Its ownership in the timber fund business equates to approximately 17,000 acres.
On Feb. 3, 2022, RYN acquired the forestry assets of 66,800 acres in productive areas of Texas and Georgia from Nuveen Natural Capital, a globally diversified investment and asset management company. This acquisition might create value for RYN through active portfolio management and help RYN grow and scale-up in strong timber markets.
RYN's sales increased 27.5% year-over-year to $262 million in its fiscal 2021 fourth quarter, ended Dec. 31, 2021. RYN’s operating income grew 49.6% year-over-year to $33.50 million. Its income before income taxes improved 92.5% year-over-year to $23.10 million. The company's net income rose 73.4% from the prior-year period to $21.50 million.
Analysts expect RYN’s revenue for its fiscal 2022 first quarter, ending March 31, 2022, to come in at $225.33 million, representing a 17.7% rise year-over-year. The Street expects the company’s FFO to come in at $0.18, representing a 119.2% increase year-over-year.
The stock has improved 30.7% in price over the past year and 12.3% over the past six months. It closed Friday’s trading session at $41.08.
RYN's strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
It has a B grade for Sentiment, Growth, and Momentum. Within the REITs - Industrial industry, it is ranked #2 of 20 stocks. To see additional component grades of POWR Ratings (Stability, Value, and Quality) for RYN, click here.
PotlatchDeltic Corporation (PCH)
PCH is a leading Real Estate Investment Trust (REIT) in Spokane, Wash. It owns 1.8 million acres of timberlands in Arkansas, Alabama, Idaho, Louisiana, Minnesota, and Mississippi. The company operates six sawmills, an industrial-grade plywood mill, a rural timberland sales program, and a residential and commercial real estate development business.
Last December, PCH announced a merger with Loutre Land and Timber Company. The company acquired Loutre’s 51,340 acres of high-quality timberlands in Southern Arkansas and Northern Louisiana. The acquisition is expected to enhance PCH’s existing timberland footprint and increase the company’s stable cash flows.
In its fiscal year 2021, ended Dec.31, 2021, PCH's cash and cash equivalents increased 17.4% year-over-year to $296.15 million. The company’s total current assets grew 17.1% year-over-year to $421.18 million for the year ended Dec. 31, 2021.
The company has an impressive earnings surprise history; it surpassed the consensus FFO estimates in three of the trailing four quarters.
The stock gained 9.1% in price over the past year and 8% over the past six months. PCH closed Friday’s trading session at $55.71.
PCH's POWR Ratings reflect this strong outlook. The stock has an overall rating of B, which translates to Buy in our POWR Ratings system.
It has a grade of B for Value, Momentum, and Sentiment. The stock is ranked #10 of 51 in the REITs - Diversified industry. Click here to see PCH’s POWR Ratings for Growth, Stability, and Quality.
WY shares were trading at $39.47 per share on Monday afternoon, down $0.52 (-1.30%). Year-to-date, WY has declined -0.26%, versus a -6.89% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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