Timberwest: How to Profit From Inflation

Recent worrying developments in the U.S. economy have many investors fretting about the potential for a period of significant inflation in the near-to-medium term. Chief among these are the staggering national debt, together with the alarming trend of financial irresponsibility among individuals. If our national savings rate is -10% now, in a period of relative prosperity, what will it be when the next cyclical recession inevitably arrives?

Warren Buffett has quietly been divesting himself of the dollar for years, and the latest Berkshire Hathaway (BRK.A) annual report contains a stark warning about our fiscal future. Whether or not these gloomy predictions will in fact come to fruition is impossible to predict with certainty, of course, but diversifying out of the dollar, a prudent move in any environment, appears to be an absolute necessity, now.

There are a number of ways to prepare for, and even profit from, a period of high inflation. Among the best are to invest in real property, commodities, and foreign currencies. An investment in Timberwest (TWTUF.PK) provides all three of these, together with a rock-solid financial foundation, and a bond-like dividend yield.

Timberwest owns 334,000 hectares of prime timberland on Vancouver Island, making it the largest private owner of forest lands in Western Canada. The land is some of the most productive in the world, yielding an impressive 8 cubic meters per hectare per year. (Prime timberland in the U.S. Southern pine belt, by comparison, averages 5 cubic meters per hectare per year.) The land is located on highly desirable Vancouver Island, and significant tracts of it are near areas of rapid urban and suburban expansion. This provides the potential for large windfall profits on real estate sales, in addition to Timberwest's solid production revenue.

Timberwest is a prime supplier to timber-hungry China, and stands to profit as China becomes more and more desperate for wood. Further, there are signs of some softening of U.S./Canadian relations over the timber trade. While there are no guarantees here, any reduction of U.S. timber protectionism could lead to even more profits for Timberwest, and would likely generate a sudden big jump in price.

Timberwest trades on the Toronto stock exchange under the symbol TWF.UN. An ADR is available in the U.S. under the symbol TWTUF.PK. The shares are of an interesting variety, one not available in the U.S. They are called "stapled units," and are similar to a combination of common stock and preferred stock. The income portion has a coupon of CDN $1.08, for a yield of about 6% at today's prices. Due to the hybrid nature of the securities, Timberwest is committed to keeping its dividend steady at CDN $1.08. Thus the shares offer a solid foundation of income combined with excellent capital growth potential. Further, the steady, high yield makes it much easier to ride out any market dips that may occur.

Timberwest would be a fine investment in any market, but if you have any worries at all about inflation (and you should), it's hard to do better than owning Canadian dollars, timber, and real estate, all in one stable investment. Consider making Timberwest a core holding in your portfolio.

Disclosure: Author has a long position in TWTUF.PK

TWTUF 1-month chart