Acadian: Timber

04/23/2015 10:00 am EST


David Dittman

Chief Investment Strategist, Australian Edge, Canadian Edge, & Utility Forecaster

Budding forests are sure signs of spring and they’re good signs for this month’s Best Buy—a company where trees, or more specifically, forest products underlie the 5%-plus yield—explains David Dittman, editor of Canadian Edge.

Acadian Timber (TSX: ADN, OTC: ACAZF) is the second-largest timberland operator in Eastern Canada and the Northeastern US, with 2.4 million acres under management.

Its products—sold to about 90 regional customers—include softwood and hardwood sawlogs, pulpwood, and biomass byproducts (or organic material that can be used to produce clean energy).

The company is susceptible to economic ups and downs, but it’s benefiting from an improving North American construction market.

Prices for most of the company’s products remained well above prior years, driving EBITDA up 24%, to their highest fourth-quarter levels in Acadian’s history.

Acadian also boosted its dividend by 9.1%, the first hike since it converted to a corporation from an income trust in March 2011.

The new dividend rate increases its payout ratio to 85.7%, but that’s still well below management’s target of 95%. To top it off, the stock trades at just 1.15 times book value, making it an attractive buy at current levels.

Acadian’s leadership remains bullish on the company’s prospects; further housing gains, along with continued strong exports, should keep North American lumber prices well above historical norms.

That would encourage Acadian’s key solid-wood customers to keep operating at full capacity, increasing demand for its sawlogs in the process. Acadian Timber—now yielding 5.2%—is a buy for aggressive investors under USD15.

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