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09/23/2005 12:00 am EST
"Quality" and "integrity" are the hallmarks of Lou Dobbs, and are also the factors he most strongly considers when assessing a stock, a company, or its management. Here, he looks at Rayonier, offering his personal assessment and an interview with the timber firm's CEO.
"Rayonier (RYN NYSE) is the eighth-largest private timberland holder in the US. It is essentially three businesses in one. The company is actively engaged in timber production and timberland investing, which involves purchasing the land, harvesting the trees and then selling the land to realize the appreciated value. To get the most out of this business, Rayonier restructured itself as a REIT. This is good for shareholders because, to qualify as a REIT, the company must return 90% of taxable income to investors. RYN's dividend has increased significantly in recent years.
"Rayonier is also one of the world's leading producers of cellulose specialty products. Beyond being used to make lumber or paper, a tree is about 40% cellulose. Rayonier's cellulose specialties can be found in a vast number of products, including plastics, cosmetics, circuit boards, baby diapers, and filtration materials. Demand for lumber and products like Rayonier's should increase as the Gulf Coast rebuilds after the devastating damage inflicted upon it by Hurricane Katrina.
"RYN is an attractive long-term investment on a number of levels. First, it is a growing company with proven investment potential. The stock is up 16% since we featured it, and when you factor in dividends, total returns are closer to 22%. In contrast, the S&P is up only 9.2% in that time. Second, it's also an American company that is competing successfully in overseas markets while using American resources.
"With all of this in mind, I sat down to talk with President and Chief Executive Officer W. Lee Nutter. Lee has been with the company almost 40 years (since 1967) and was elected to his current position in 1999. He knows the forest products industry better than many of his competitors and peers, and his leadership has clearly benefited stakeholders.
Lou Dobbs: Lee, welcome back. From my vantage point, you've had a successful year. How would you describe it?
Lee Nutter: It's been a very strong year for us, and I think our stockholders would certainly agree. Structuring the company as a REIT has gone better than we expected. The reception within the investment community was better and stronger than we thought it would be. We still feel there is substantial upside for this company's value from where we are, and I think we'll continue to see it over time.
Does that mean you're focusing more on your core business?
There are perhaps two other opportunities that we might look at, but they will be very small. The overall strategy is to tighten our focus on our three primary business components: timber, real estate, and performance fibers. In performance fibers, as we indicated last year, we have major market position. We do not see any opportunities to expand that business (through acquisitions), other than perhaps some internal growth, but that would be minor.
In the timberland business, we will continue to look at both the US as well as the Australasian footprint. Right now, we feel we are pretty well-balanced there. I think the one thing you will see, and it started with the announcement of the formation of our TerraPointe real estate and development group, is that we plan to extract significantly more value from the properties we own. There are 200,000 acres along the I-95 corridor from Savannah, Ga., to Daytona Beach, Fla., that we feel have a lot of value, and the reason for putting TerraPointe in there and staffing it up is to extract more of that value as we move ahead. It has appreciated considerably over the last five years, and if you look at the growth in that area, I think it will continue to do so.
Last year we discussed your substantial position in China in cellulose specialties and absorbent materials. With China's economy growing the way it has, has anything changed for you?
If you look along the Eastern coast of China, the economic growth is just short of phenomenal. You see a lot of concern of overheating the economy in China, and perhaps there is some downside to it, but I feel it is pretty modest. Our business in China is very stable. It's grown. We have good relationships; we've been in China for 25 years.
We indicated last year that of our total company's sales, about 48% is offshore. It's certainly nothing we've recently moved to. It's been that way almost since the beginning, so we really don't differentiate in our minds between sales within the United States as compared to sales out of the United States, even China. For instance, we have owned timberland in New Zealand since 1989 and had investments there for 17 years. We're very comfortable there, as we are in all of our markets.
Your stock is up about 16% since last September. Are you happy with that performance?
I can never be happy with the stock's performance. My job is to continue to convince or explain to the investor the value of this company and thus increase the stock price. We continue to do so, and we have been successful in the last 12 months. There is still certainly more upside. I think there's value there that people have not recognized. Another thing that will be different in the next few years will be recognizing the value of our real estate in both our earnings and our communication with investors.
You've paid out a nice dividend of 62 cents per share the first two quarters of 2005, which comes to $2.48 per share over a full year, a 4.7% yield at your stock's current price. Can you keep returning this kind of payout to investors?
If you look at our cash flow, it's certainly very strong and more than supports our current dividend level. Looking ahead, we will regularly look at it because of our cash flow. One of the important features of Rayonier to the investment community is obviously our dividend. And we did increase it 10.7% over last year after having increased it by about 150% the year before when we became a REIT. We have a pretty good track record here, and we've really got a very good yield. It's even more attractive if you consider that part of our dividend is return in capital. The effective tax rate to an investor is a maximum of 15% and in most cases, depending on the shareholder's basis, it is going to be somewhat less than 15%. So we have a very favorable tax rate on our dividends. The effective yield last year came to about 4%, after taxes.
Lee, thanks for being with us again. We look forward to watching further developments at Rayonier.
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