For years, environmentalists have bemoaned the destruction of trees. The timber real estate investment trust (REIT) sector might actually be one of the most environmentally friendly industries around, though. If you are interested in helping to preserve the world's forests, take a look at Weyerhaeuser (NYSE:WY), Rayonier (NYSE:RYN), and Plum Creek Timber (NYSE:PCL).
Falling trees = environmentally friendly?
There is no question that deforestation is a major issue in the world. Trees help to remove carbon dioxide from the atmosphere; fewer trees mean more greenhouse gasses. However, not every tree owner is looking to make a quick buck by cutting down his or her trees.
For example, Weyerhaeuser and Rayonier both make money from cutting down trees. They only own a set amount of land and trees, though, so every tree cut down without replacement hurts their business. That's why they are planting trees at the same time as they are cutting them down.
Wood products are also naturally biodegradable. Unlike Styrofoam, wood-based materials won't be with us for decades. It's a wonder that we even bother recycling wood-based products like paper when that energy might be better spent on less environmentally friendly products like soda bottles.
To make things even better, trees aren't all that hard to grow. You pretty much sit back and let nature take its course. The problem is that trees grow slowly. Of course, that just means that companies like Plum Creek spend extra time protecting their trees, which in the end is protecting future revenues.
Big with trees
After its recent $2.7 billion purchase of 645,000 acres of timberlands, Weyerhaeuser now controls nearly 7 million acres of forest land in the United States. It manages another 14 million acres in Canada. With more than 20 million acres worth of trees, it is one of the largest timberland owners in the world.
And the company "is dedicated to industry leadership in forest stewardship and sustainability." That's verified by the Sustainable Forestry Initiative, which provides the standards that Weyerhaeuser lives up to.
Weyerhaeuser derives that bulk of its revenues from selling wood products such as lumber and plywood used predominantly for residential construction. That opens the company up to the swings of the housing market, which was a notable negative during the 2007 to 2009 housing-led recession. Despite positive attributes, trees are still a commodity.
Rayonier was able to weather the housing downturn relatively well because of a differentiated business model. The company is much smaller than Weyerhaeuser and Plumb Creek, controlling just 2.7 million acres of timberland. It also operates according to Sustainable Forestry Initiative guidelines.
About three-quarters of Rayonier's revenue comes from performance fibers. Essentially, the company turns its trees into the fibers found in packaging, cigarettes, diapers, and even LCD displays. This means Rayonier really isn't a lumber company. That should make it even more interesting on the environmental front, however, since many of the products its trees get used in are disposable. Unlike the lumber used in houses, that means relatively steady demand.
Home sales a concern
Plum Creek owns around 6.3 million acres of U.S. timberland, but just inked a deal to acquire approximately 500,000 additional acres for $1.1 billion. After that purchase, it will be just shy of Weyerhaeuser's owned total and more than twice the size of Rayonier. Like Weyerhaeuser and Rayonier, Plumb Creek lives up to the Sustainable Forestry Initiative guidelines for its timberland that goes mainly toward the housing market.
On that front, it's important to note that Plum Creek often sells land for housing development and recreation. That's less environmentally friendly, though not exactly unique in the industry. In fact, Plum Creek has historically generated a large percentage of its revenues from land sales.
It's worth noting that Weyerhaeuser is jettisoning its home construction business, so this key competitor appears to be shifting away from the homebuilding space so that it can focus on its forest assets. This is a trend to watch at both companies since clearing land for houses means that there's less land available for trees. In the end, such land sales make Plum Creek less desirable from an environmental angle.
Saving the future
Weyerhaeuser, Rayonier, and Plum Creek are good environmental stewards because it makes business sense. Deforested land doesn't make them money. It's also worth keeping in mind that the vast majority of the products that come from their lands are biodegradable. If you are looking for a nearly perfect recycling business, timber REITs should be on your radar.
Reuben Brewer has no position in any stocks mentioned, and neither does The Motley Fool. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.