12/02/2005 12:00 am EST
Steve Sjuggerud has been a fan of timber for several years and has seen large gains from his investment in this sector. Now, the advisor sees a under-recognized timber play in Canada. Here’s his review of what he calls the "best value in timberland."
"Based on Canada, TimberWest (CA:TWF.UN Toronto), is the best timberland value in North America today. Most of TimberWest's holdings are on picturesque Vancouver Island. TimberWest, in fact, owns 11% of the island. Most of those holdings are in the southern portion of the island. This is prime tree-growing country. Trees need rainfall and sunlight. The days are long in the summer, providing the sunlight. And the rainfall, as Seattle residents can attest, is plentiful. With these ingredients, you might be surprised to learn that trees in the Pacific Northwest actually average 8-10% growth per year, versus 5%-7% growth in the Southeastern US. This growth is exceptional.
"A value of $1,850 an acre is a very conservative guess for timberland values in Oregon and Washington, based on large timberland deals there in recent years. Yet, based on its current stock market price, TimberWest is valued at $1,250 an acre. Even better, TimberWest is ideally situated to pick up some large real estate sales as well. The land it owns is simply gorgeous. The area around Vancouver Island may be my favorite place to be on the planet in the month of August. The Vancouver/Victoria area is hot. And TimberWest is well positioned to capitalize on the growth. TimberWest already has about 15,000 acres earmarked for real estate sales. You can bet these sales will go for much higher than $1,850 an acre.
"By buying in now, you get 825,000 acres of timberland. Of that, there may be as much as $150 million in land sales hidden in there. And you get a rock solid 8% dividend— a dividend that will remain at $1.08 per year ($0.27 per quarter) quite possibly for the rest of your life. This dividend is something to talk about. The company recognizes that its shareholders appreciate a stable dividend payment. The company has paid $1.08 a share per year (or more specifically, $0.27 per quarter) since 1998. And by charter, it plans to pay $1.08 dividend per share per year until the year 2038, at least.
"Since the beginning of 2003, Rayonier shares are up over 140%. Shares of Plum Creek are up over 70%. And shares of TimberWest are up only 10% (in Canadian dollars). TimberWest, hiding up in Canada, has been ignored. It's time to buy. The company is pretty simple. They own valuable land. And they cut logs and sell them. That's it. These days, they don't spend much money on machinery or people, choosing to outsource all the work. It's a simple business, at its core. By buying TimberWest now, you'll get an 8% annual dividend with the potential for increase in the share price. It should be a great low-risk winner for the next several years."