One sector I thought would outperform with rising inflation was lumber stocks. After the covid crisis, lumber prices skyrocketed. They have since gone down with the housing market, but there may be an opportunity for investors that are looking to invest long-term in lumber stocks because I believe lumber prices will back.
The lumber industry has seen a dramatic shift in the past few years, both in terms of the amount of lumber produced and the stock prices of lumber companies. As a result, investors and lumber companies must keep a close eye on the trends of the lumber industry to ensure that they make the best decisions for their investments and businesses.
In this blog post, we will explore various aspects of the lumber industry, including an in-depth look at the stocks of lumber companies.
I will discuss how these stocks are affected by the changing dynamics of the lumber industry and offer tips and insights on making the most of a lumber investment. We will also discuss the potential risks and rewards of investing in lumber stocks and other strategies investors can use to maximize their profits.
Finally, we will provide an overview of the current market conditions and help you decide if investing in lumber stocks is right for you.
Table of Contents
- 1 Lumber Stock Picking For Dividends
- 2 Lumber Prices and The Lumber Industry
- 3 Best Lumber Stocks List 2022
- 4 Final Thoughts On Lumber Stocks
Lumber Stock Picking For Dividends
The best-performing stocks are those that have the potential for the highest dividend payments to investors over a long term (usually a decade), and a good selection for both price and income goals.
For this reason, it is important to focus on quality, not just the dividend rate or past performance. The higher the quality, the more likely the stock will be able to produce a high dividend over its holding period – an asset class known as the “steady” category.
Lumber stocks are very sensitive to lumber prices, which correlate to the economy. Finding a company that has strong financials that can weather a bad economy is critical. As a dividend investor, I am looking for long-term company profitability growth.
Lumber Prices and The Lumber Industry
Almost every sector has felt the effects of inflation, but the impact has been more in some than others.
The wood sector is one industry in which prices have increased as other sectors felt the impact of inflation. For example, during its peak, the cost of 1,000 board feet exceeded $1,600. Although prices fell below $1,000, the current price of wood is $1,160, much higher than a year ago and substantially higher relative to the near-term average.
Many things are causing prices to rise, such as invasions of wood-boring bugs and fires that affect timber companies. Construction companies are likewise in a rush to get new houses on the market ahead of the Federal Reserve’s interest rates hikes and mortgage rates increase. This has caused a massive slowdown in the housing market which directly affects lumber prices.
All the factors highlighted have contributed to the increase in timber prices for quite some time. This article evaluates three divided-paying lumber stocks for investors seeking high returns.
Best Lumber Stocks List 2022
Amcor Plc (NYSE: AMCR)
The first name to consider is Amcor, a renowned developer, and producer of packaging products used in numerous markets. The corporation is worth $17.6 bn and brings in nearly $14 billion in revenue annually.
Amcor was created due to the merger of the Australian-based Amcor Ltd. and the American-based Bemis Company Inc. The merger increased the combined scope and size of services of the respective firms by uniting two top packaging businesses. With this combination, both businesses were able to access new markets. In actuality, Amcor now conducts business in 40 different nations.
The company focuses on producing recyclable, reusable, and lightweight packaging. Its packaging is used in retail markets such as personal care, healthcare, food, household, beverage, and pharmaceutical. As a result, there is some consumer-type diversity.
These customers are also found in the more protective sectors of the economy. For instance, packaging is required for goods connected to food, drink, and healthcare, even when the economy is volatile.
The corporation has a significant foothold in emerging markets, with 20% to 25% of yearly revenue coming from these areas. Latin America and China, two regions with stronger growth and increasing packaging customer needs, will be of particular significance. If the world economy weakens, Amcor’s reliance on emerging areas could present a problem, but as these economies grow, it could also benefit the company.
The fact that no client contributes over 10% of the firm’s annual revenue is another benefit since this helps to mitigate any potential negative effects that should demand a decline from a single account. PepsiCo (PEP) and its affiliates are Amcor’s biggest clients. However, even in this case, the corporation is safeguarded because PepsiCo’s arrangements with Amcor are dispersed across many contracts in various places, meaning that decreased purchases from the corporation would probably come in little batches rather than all at once.
Amcor is a relatively young firm, yet Bemis was bought with a dividend growth record of over 25 years. It is in the firm’s DNA to increase dividends. Since Amcor became a single corporation, the annual dividend has increased yearly. Although dividend growth may be on the modest side for the time being—the forecast payout ratio for this year is 59%—distributions are probably secure from being cut. Shares currently yield 4.1%, a significant increase from the S&P 500 Index’s average return of 1.34%.
UFP Industries (NASDAQ: UFPI)
UFP creates and sells a variety of construction supplies. There are about 200 of them all across the world, and they serve a wide variety of final markets. The business manufactures both time-honored and cutting-edge construction materials. For businesses, it also provides concrete molding and other packaging options. It has built a solid reputation in the lumber distribution market.
UFP Industries is a company to keep an eye on despite its relatively low profile as a holding company. Its service and product variety are two of its numerous advantages. For instance, the company is able to compete favorably in the lumber and building product industries thanks to its capacity for manufacturing and distribution.
When estimating a stock’s worth, it’s important to look at both the price-to-earnings (P/E) ratio and the price-to-earnings growth (P/E growth) ratio (PEG). You may learn a lot about a stock’s true worth by looking at these two financial indicators. When compared to P/E, PEG paints a more comprehensive view of a stock’s worth. If the PEG ratio for a stock is low, that can mean it’s a good deal.
A stock’s PEG ratio is determined by dividing its current P/E by its predicted growth rate of earnings. Note that the PEG ratio will vary depending on the company.
For UFP Industries, retail, manufacturing, and building & construction are the three main pillars of business. Lumber, dimensional lumber, plywood, and wood-based panels are all manufactured and sold as part of the Industrial business area. As part of its Retail division, it sells packaging and other wood goods to businesses and consumers.
Its net sales for the third quarter of 2022 were up a remarkable 6% from the same period the year before. It also had record earnings per share. The company also boasted a healthy EBITDA margin of 11.8% in its financial statements.
Compared to the S&P 500, UFP Industries stock has been reasonably stable over the previous several weeks, falling by only 4%. Given the current market, the pricing has remained a steal. UFP Industries stock is a good option if you’re seeking for a stable business with promising growth prospects.
Rayonier (NYSE: RYN)
Rayonier stock may be the best option for you if you’re looking for a stable return on your investment. The Canadian timber company operates in the oil and gas, building, and automobile industries. The firm dominates its field and is well-recognized as an industry frontrunner in wood production. Investors can also receive dividends from the company.
Timberland real estate investment trust Rayonier (RYN) owns properties in the Pacific Northwest, New Zealand, and the United States. Notable achievements include purchasing prime timberland from Manulife Investment Management for $454 million.
Watching for dividend growth is a good indicator of a company’s health and success. For almost the previous five years, RYN has distributed 46 dividends, with an average payout of over $1.13 per share. These payments are only expected to grow in the years to come. The financial health of RYN can be gauged by contrasting its upcoming distribution with the 6.18% average payout of its industry.
State forestry commissions and federal regulations govern the timber industry. Legislative and regulatory shifts may have an adverse effect on operations. The company’s bottom line is extremely sensitive to the state of economies that are major importers of timber. It is also vulnerable to the effects of currency conversions.
In terms of assets and finances, Rayonier is solid. Cash and cash equivalents are plentiful, and the corporation has access to a healthy debt market.
So it’s not unexpected that investors have come up with several ways to determine a stock’s true worth. Examining a statistical model, which provides a means of quantifying the projected fair market value of an asset, is one of the most effective ways to do this. Comparing the valuation indicators of comparable companies is another useful technique.
The business operates in a sustainable manner when it comes to trees. It participates in the Sustainable Forestry Initiative, a program that calls for regular assessments of forestry operations. It also features a group dedicated to studying silviculture, which includes scientists working in genetics, chemical applications, and other fields of study.
The province of Quebec is another important market for the firm. Therefore, the deal is anticipated to strengthen the firm’s foothold in the state. The merged firm will be more powerful in terms of research and development and have expanded global reach.
Weyerhaeuser (NYSE: WY)
The final lumber stock to consider is Weyerhaeuser, which owns private timberlands. The company is valued at $31 and generates yearly revenue of $7.5 billion.
In 2010, Weyerhaeuser became a real estate investment trust (REIT). In order to become one of the biggest timberlands owners in North America, the trust combined with Plum Creek Timber Trust in 2016. Weyerhaeuser operates largely in the United States, where it owns over 12 million acres, and Canada, where it holds timberlands on long-term licensing agreements, in contrast to the other companies mentioned before.
The Weyerhaeuser REIT manages forest land spreading across 20 million acres in the US and Canada. The company has also leased land in Uruguay. Therefore, the portfolio makes REIT one of the biggest forest product names in the sector.
Weyerhaeuser is impacted by the cyclical fluctuations in the price of timber and timber, which are generally beyond its control. Despite this, Weyerhaeuser has profited substantially from growing home values, and the trust has witnessed its company perform exceptionally in the short run. The construction of new houses is still going on even though there is currently a huge shortage.
Veneer, structural timber, plywood, hardwood, and softwood lumber are just a few items sold by Weyerhaeuser. Most materials, such as formwork, roofing, subflooring, and roof and floor joists, are employed in building new residential homes.
Along with being used to build homes, Weyerhaeuser’s wood is also used to make furniture, cupboards, decks, and pallets.
Weyerhaeuser stockholders had enjoyed dividend payout for nine years running up to 2020. This shifted in 2020 as the trust coped with the uncertainty of the Covid-19 crisis and lowered its payment in half. Even if the corporation offered an additional payment last year, the dividend payout was still lower than before the pandemic. Since this year’s dividend yield is only predicted to be 32%, the payout seems to be in relatively safe hands. Additionally, this dividend payout is far lower than a normal REIT. The present yield, 1.6%, is below what REITs typically offer but is higher than the index average.
Boise Cascade Co (NYSE: BCC)
One of America’s leading producers of agricultural and industrial goods is the Boise Cascade Company (BCC). In addition to being an industrial powerhouse in forestry, the corporation is at the forefront of renewable energy and water supply. The corporation has consistently expanded, both through mergers and through its own production.
Based in the city of Boise, Idaho, the Boise Cascade Company is a publicly traded, manufacturing conglomerate. It serves customers in both the US and Canada. The firm’s main product is manufactured wood. It markets its wares to shops, distributors, and builders.
Two of the company’s primary divisions are Wood Products, which produces laminated beams and structural plywood panels, and Building Materials Distribution, which supplies hardware stores, hardware wholesalers, home improvement centers, and specialty distributors with a wide variety of everyday building supplies. While the Building Materials Distribution section will continue to be the largest contributor to total revenue, the Wood Products segment is expected to account for around 21.1% of total revenue in 2020.
Boise Cascade Co. is a great choice if you want to invest in a dividend growth company with potential. Supplying the North American market with engineered wood products is the company’s main focus. Plywood, laminated beams, I-joists, and I-beams are all available from Boise Cascade, which is located in Boise, Idaho. The company also serves the needs of residential and light industrial clients by supplying EWP and OSB.
Wood Products and Building Materials Distribution are the two reportable segments at Boise Cascade. The former manufactures the company’s namesake products—I-joists and laminated beams—while the latter distributes a wide variety of OSB, plywood, and general line goods to construction sites. The former generates a greater share of total revenues and is therefore the company’s primary source of income.
While Boise Cascade Co’s financial situation has improved from year to year, there is still many possibilities for future growth. The company has two main locations, one in Boise, Idaho, and the other in Calgary, Canada, and it is very good at what it does, which is delivering various building products, including plywood, timber, and OSB.
Plywood, particleboard, and other engineered wood products are also specialties of the company. The company is proud of its extensive sales network, which comprises a multitude of distribution locations and sales offices across the United States, Canada, China, and Australia. Furthermore, it is a fiercely competitive business. The corporation owed $444.6 million as of the end of 2021. The total liquid assets for the firm were $1,094.9 million.
Boise Cascade Company (BCS) is a publicly traded company with a history of supplying high-quality timber products to the construction industry. It runs mostly out of the United States and Canada, where it also has production facilities and sales offices. There is money coming in, and the company has a healthy profit margin.
It has a higher-than-average rate of profitability, earning it a nine on the profitability scale. An excellent return on equity of 0.55 is also present. Furthermore, its expansion has been phenomenal. Over the past three years, it has grown by an average of 7% annually. The company’s finances are sound, and insiders hold a reasonable stake in it.
The percentage of revenue that is retained as profit has grown in recent years. By December of 2018, it had dropped to 13.8% from an all-time high of 23.0% in September of 2022. Boise Cascade saw a decline in its gross profit margin in 2019. Its yearly rate of expansion is predicted to reach 4.83 percent during the next few years.
International Paper (NYSE: IP)
International Paper, a company that offers pulp, paper, and packaging made from renewable fibers to clients worldwide, is of my top lumber stocks. The $18 billion business generates nearly $21 billion in revenue annually.
Secondly, International Paper’s business has an unparalleled global reach. The corporation has production facilities in Latin America, Asia, North America, Europe, and North Africa. In addition, over 25,000 unique clients use International Paper’s goods across 150 countries. As a result, International Paper can keep pricing control and ward off competitors thanks to its reach and client base.
Additionally, the business serves a broad range of consumer types with its products. This comprises industrial packaging, which accounts for over 85% of yearly sales. In addition, non-durable commercial items, processed foods, agriculture, and meat products are some of the market segments for this company.
Although industrial packaging accounts for most of the sales earnings, its array of cellulose fibers is equally significant. The company is the largest manufacturer of fluff pulp, used in products such as feminine care items and infant diapers. Tissues, as well as other paper goods, are made from market pulp. Although it accounts for only around 15% of total sales yearly, this firm has a greater profit margin than International Paper’s other venture.
Earlier in October 2021, International Paper broke off its writing and printing paper division into a separate corporate entity called Sylvamo Corporation (SL M). This enables the business to concentrate on its two core businesses.
International Paper had raised its dividend for ten years before reducing it last year. After separating its print division, the corporation lowered its payout, although it also did so to preserve its sound financial standing. As a result, just 40% of the dividend for this year is anticipated. After the reduction, the yield of 3.9% is still incredibly generous and is almost three times that of the S&P 500 Index on average.
West Fraser Timber Co (NYSE: WFG)
Canada’s West Fraser Timber Company grows trees for a wide range of uses, including lumber, newsprint, pulp, and oriented strand board (OSB). They make a variety of wood products including MDF, LVL, wood chips, and more.
The Canadian firm West Fraser Timber Co. manufactures a wide variety of wood products, including timber, pulp & paper, and engineered wood. Numerous mills are spread out across Canada and Europe owned by this corporation. Most of its operations are based in British Columbia and the United Kingdom.
When it comes to timber, OSB, and other wood products, West Fraser is a global powerhouse. It serves the paper and pulp industries, as well as the construction and commercial building sectors, from its 60 mills and facilities throughout the United States, the United Kingdom, and Europe. Additionally, the firm deals in the distribution of green energy.
OSB manufactured by this company is widely regarded as the best in the industry and may be used for a wide range of building applications. It can be utilized as a floor, wall, or parquet material. It’s also a great option for building projects due to its superior nail-holding properties. Wall sheathing of the lengths manufactured by West Fraser works well in both vertical and horizontal configurations.
Not only does it produce plywood, laminated veneer lumber (LVL), and pulp, but it also produces a variety of other engineered wood products. As of right now, the LVL factory in Dudley, GA is on track to become the second fully renovated lumber mill site in the southern United States in the previous two years.
Canadian lumber and paper manufacturer West Fraser produces under the West Fraser brand name. Businesses are running in Canada, the USA, and Europe. The company manufactures hardwoods, softwoods, and specialized wood items. Its products can be found in both domestic and commercial building projects.
There’s a plywood factory in Edmonton and a stud mill in Slave Lake. Timber rights in British Columbia, Alberta, and Saskatchewan are among West Fraser’s many assets.
If you’re looking for the best products and services in the timber industry, look no further than West Fraser. All of the trees used in their goods come from sustainably tended forests in North America and Europe. The company has a number of noteworthy achievements under its belt, including the creation of the first fiber-cement board and the construction of the tallest commercial wind turbine in North America. It’s also worth noting that they possess the biggest LVL mill in the country.
Final Thoughts On Lumber Stocks
There are a handful of really great companies to invest in. Before investing in timber or any commodity-type company, make sure you look up the company’s profitability, and market capitalization, make sure they have a solid balance sheet, and check their current leases and access to publicly owned forests.
The risk can be high for these types of companies due to the strong correlation to lumber prices and the housing sector. If you want to minimize some risk, I recommend you look at ishares Global Timber or invest in mutual funds.