On Wednesday May 8, Plum Creek Timber, Inc. (NYSE:PCL) announced a quarterly dividend increase of $0.02/share to bring its upcoming dividend payout to $0.44/share. It should be noted that this increase represents a 4.76% rise from its prior dividend of $0.42/share, which was paid on March 1. In the wake of Plum Creek Timber's dividend increase I wanted to not only examine the company's Q1 results but highlight the one of the more-important key catalysts behind my decision to consider a long-term position in this particular timber-based REIT play.
According to Plum Creek Timber's CEO Rick Holley, "The increase in our dividend reflects our expectations for the continued growth of long-term, sustainable cash flow from the company. In 2012 the cash generated by our manufacturing and timber resource businesses grew by a combined $44 million and we expect further growth from these businesses in 2013". If Plum Creek Timber can stick to its strategy of returning equity to shareholders by consistently increasing its cash flow, there's a very good chance the company's dividend growth could become a bit more consistent over the next 12-24 months.
Overview: Based in Seattle, Washington, Plum Creek Timber Company, Inc. is a publicly owned real estate investment trust (REIT). The trust owns and manages timberlands in the United States. Its products include lumber products, plywood, medium density fiberboard, and related by-products, such as wood chips. The trust also focuses on mineral extraction and natural gas production, communication, and transportation. (Yahoo! Finance) On Wednesday, shares of PCL, which currently possess a market cap of $8.48 billion, a P/E ratio of 41.70, a forward P/E ratio of 31.02, and a forward yield of 3.37% ($1.76), settled at $52.12/share.
Trend Status: Based on Wednesday's closing price, shares of PCL are trading 0.46% above its 20-day simple moving average, 2.51% above its 50-day simple moving average, and 16.07% above its 200-day simple moving average. These numbers indicate a short-term, mid-term and long-term uptrend for the stock, which generally translates into a buying mode for traders.
Strong Q1 Performance: On Monday April 29th Plum Creek Timber, Inc. reported the results of what I believe to be a very strong first quarter. The company's Q1 EPS of $0.235/share beat street estimates by $0.03/share and its revenue of $340 million beat street estimates by $4.67 million. The company's operating margin rose to 22.9% from 14.8% as costs and expenses declined and revenues generated from its Timber and Manufacturing segments grew 9.7% and 13%, respectively.
What is the single-most driving force behind my decision to consider Plum Creek Timber? Very simply put, I happen to be a very big fan of the company's full-year 2013 outlook especially since income expectations are expected to fall between $1.25/share (in-line on the low-side when compared to 2012) and $1.50/share (20% year-over-year increase on the high side when compared to 2012). If the company can successfully harvest between 17.5 and 18.0 tons of timber by year's end (which I happen to think is a bit conservative given the current uptrend in housing demand), 2013 could end up being quite the productive year.
Conclusion: When it comes to those who may be looking to establish a position in Plum Creek Timber, I'd continue keep a watchful eye on not only the company's dividend behavior over the next 12-24 months, but any key developments that would positively affect the company's earnings growth, such as a Timber harvest that meets or exceeds expectations or a sustainable amount of growth from the home builders who need lumber for the continued progression of the housing market.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in PCL over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.