This storied company, founded in 1900 and based amidst Washington's dense forests, is one of the world's largest, private owners of timberland. The company possesses more than 13 million acres of timberland, primarily in the Northwest, and manages another 14 million acres under long-term leases in Canada.
With a market cap of $23.3 billion, Weyerhaeuser is structured as a real estate investment trust (REIT). The dividend yield is currently a robust 3.96%, making it a stalwart in many retirement portfolios. Here's why Weyerhaeuser is a sold growth-and-income play that belongs in yours.
The company reports earnings Friday. Weyerhaeuser shares rose .45% in Thursday trading.
In addition to growing and harvesting trees, Weyerhaeuser manufactures forest products and constructs houses. The company operates in five divisions: wood products, cellulose fibers, timberland, real estate and related assets, and corporate and other.
In the late 1990s, Weyerhaeuser streamlined its operations and sloughed off several tangential businesses such as mortgage banking, personal care products, financial services and information systems consulting. In 2010, the company converted to a REIT.
For a huge property owner such as Weyerhaeuser, the restructuring made sense. REITs provide investors with the advantages of real estate investing, but with less hassle.
It's difficult to quickly buy and sell a physical piece of property. But REITs offer a liquid way to invest in this typically illiquid asset class.
The tax benefits of REITs flow straight into investor pockets. To qualify as a REIT, most of the company's assets and income must be related to real estate. In addition, the company must distribute at least 90% of its taxable income to investors in the form of dividends (or distributions, as they're called in the world of REIT investing).
REIT investors benefit not only from high yields but also the elimination of double taxation. Profits aren't taxed at the corporate or REIT level; they're only taxed at the investor level.
While much-ballyhooed tech stockshave a nasty tendency to nosedive without warning, REITs can provide a stable income stream as well as capital appreciation. But you must be selective. Not all REITs are created equal. Weyerhaeuser is a good, long-term proposition.
The average analyst expectation for the company is for earnings per share (EPS) to come in at 16 cents, compared to 24 cents in the same period a year ago. Consider that decline a temporary blip.
Weyerhaeuser has enjoyed a long history of year-over-year earnings growth and its winning streak should soon resume. Demand for its products this year should increase amid a sustained housing boom and stimulative, construction-related spending under the Trump administration. Earnings growth for next year is pegged at a strong 41.8%, and over the next five years at 5% on an annualized basis.
Weyerhaeuser's cash from operations is strong and growing. Net operating cash flow increased in the most recent quarter to $347 million, a healthy year-over-year gain of 23.04%. That exceeds the industry's average cash flow growth rate of 11.06%.
Shares of Weyerhaeuser are up 4.9% year to date, compared to a gain of 1.87% for the S&P 500. Weyerhaeuser has further to run, as the home building and construction sectors continue to show signs of growth.
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John Persinos is an analyst with Investing Daily. At the time of publication, he owned none of the stocks mentioned.