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Agriculture, timber, and farming are often overlooked sectors when it comes to real estate investment trusts (REITs), but they can be a profitable way to invest in real estate. Right now, with housing demand and new construction at all-time highs, timber is booming, meaning Weyerhaeuser (NYSE: WY), one of the largest timber REITs, could be one way for investors to profit. Take a closer look at the company today to determine if it's a buy right now.
Housing boom resulted in record performance
Weyerhaeuser is the largest private owner of timberlands in North America, owning 11 million acres in the United States and leasing 14 million in Canada, which allows it to sell or lease real estate, timber, energy, natural resources, and wood products domestically and internationally. In 2020, the company achieved net earnings of $7.5 billion, with timberlands and wood products leading the way. Net earnings per diluted share increased $1.17 from 2019 to 2020, while the company achieved the highest wood products Adjusted EBITDA on record. Outlooks for 2021 remain positive, with the company's latest forecast projecting to increase for all product classes.
This performance is largely driven by limited housing inventory, which has created a high demand for new housing starts. But the company isn't taking this increase in revenues for granted, having paid off $900 million in debt while implementing a new dividend structure, which utilizes quarterly dividends with a supplemental bonus dividend to help achievethe targeted return for investors (75 to 80 percent of annual adjusted funds available for distribution).
Is it a buy today?
The company's performance hasn't gone unnoticed. Share prices are up 45% from this same time last year, but so is the company's total return.
Right now, with the dividend structure, investors can expect to receive just under a 2% return not including supplemental dividend payments, which is fairly low in the world of REITs. However, I do think Weyerhaeuser is still a buy in the given market, as it's set to profit from another high-demand year driven by a housing shortage. But investors should keep in mind that the performance the company is achieving currently isn't necessarily sustainable over the long run. Since Weyerhaeuser has a diversified portfolio outside of timber, it has the possibility to benefit from energy or housing booms, but it's also at risk when it comes to a bust. If housing supply finally outpaces demand, new starts will decrease and the revenues we've seen driven from the company's timberland and wood product sales will decrease with it.
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