There are plenty of opinions floating around concerning the current state of the housing market. Lately, most of them are taking on a more positive ring, but they are just that -- opinions. A recent Bloomberg article, however, caught my eye because it addressed a signal that portends a recovering housing market: Railroads are shipping more lumber destined for homebuilding, and they're taking rail cars out of storage to do it.
This is great news for the rail industry, but what about lumber companies? It seems that they are doing a land office business, too.
Timber REITs lead the way
Barron's took a recent look at big timber REIT Weyerhaeuser (NYSE: WY ) , and the future is growing rosier by the day. The company manages 22 million acres of timberland, some of which is prime, old-growth forest in the southern U.S. and the Pacific Northwest.
The company's stock has risen more than 40% over the past year, in no small part because of more activity in the housing sector. Weyerhaeuser's management noted that its timberlands, wood products, and real estate sections have made impressive gains, with sales increasing 30% at the end of Q1. The percentage increased to 38% year over year, at the end of the most recent quarter.
Other timber REITs are coming along, too. Rayonier (NYSE: RYN ) is a diversified REIT like Weyerhaeuser, but it manages only about 2.5 million acres, primarily in the U.S. and New Zealand. This company turned in some nice numbers for the past two quarters and, like Weyerhaeuser, saw greater revenue increases year over year in Q2, probably because of new housing starts taking hold.
Plum Creek (NYSE: PCL ) , owner of 7 million acres, and Potlach (NYSE: PCH ) are also seeing gains from the burgeoning housing revival, though Plum Creek's Q2 revenues were dinged a bit by higher costs. Still, the company expects its growth to continue, albeit at a slower pace. Potlach, the smallest of the REITs with 1.6 million acres of forest land, turned in another good earnings report, noting that demand for its wood products was higher than it had expected.
Weyerhaeuser is the heavy hitter here, and as long as the housing sector continues to revive, its growth looks unstoppable. Indeed, a BMO analyst recently opined that the company could conceivably increase its payout over the next year. As with all REITs, Weyerhaeuser and the others profiled in this article must distribute 90% of their income to stockholders. In this low-interest-rate environment, that's music to income investors' ears.
The rebounding housing sector should continue to favor these REITs, including Plum Creek, which needs to work on cost containment. If you're an investor wanting to ride the wave of the improving housing outlook, you may not need to look any further than the forest.
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