Tags: PCL | timber | REIT | stocks

Plum Creek Timber a Play On Recovery

By Tim Plaehn   |   Friday, 23 Sep 2011 03:02 PM

Plum Creek Timber (PCL) is a real estate investment trust (REIT) but significantly different from REITs owning commercial buildings or apartments. As the name implies, Plum Creek Timber owns timberland. As such, it has been able to pay an attractive long term dividend to investors.

Plum Creek Timber is the largest landowner in the United States, owning almost 7 million acres in 19 states. The company earns revenues by selling trees harvested on its land holdings to become saw logs or pulp wood. Plum Creek Timber also is an active buyer and seller of land, generating significant capital gains from its land holdings. Another stream of income is from the manufacture of wood products such as lumber, plywood, and medium-density fiberboard (MDF).

The income reported by Plum Creek Timber fluctuates significantly due to changes in the amount of timber harvested, current timber prices, and the results of real estate transactions. The company also generates significantly more cash flow than its reported net income and earnings per share (EPS). The result is a quarterly dividend which is often higher than the reported EPS for the quarter.

Dividend payout

Shares of Plum Creek Timber are an asset and a commodity investment combined. Investors have earned a consistently high dividend payout and yield. The current 42 cents per share dividend has been in effect since the first quarter of 2007 and results in a yield of more than 4 percent. Unlike the dividends of other REITs, the distributions from Plum Creek Timber are primarily classified as capital gains, with an occasional portion listed as return of capital.

With the very low level of home construction in the United States, timber sales and prices have been stagnant for the company. Discussing business conditions in the second quarter earnings report, management noted the "pace of recovery is slow and erratic."

Nevertheless, analysts have recently turned more positive on PCL. UBS analysts upgraded the stock to neutral from sell. Analysts at D.A. Davidson moved PCL to buy from neutral, and the folks at BMO Capital Markets increased their rating to outperform, up from market perform.

The company reports next on Oct. 24.

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Plum Creek Timber (PCL) is a real estate investment trust (REIT) but significantly different from REITs owning commercial buildings or apartments. As the name implies, Plum Creek Timber owns timberland. As such, it has been able to pay an attractive long term dividend to...
PCL,timber,REIT,stocks
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2011-02-23
 

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