Seeking Alpha

Barron's sees downside for Plum Creek Timber

  • "It's the only timber REIT not earning its payout," Sandra Ward writes, adding that Plum Creek Timber's (PCL) "generous dividend ... amounts to about 130% of earnings."
  • At 30X earnings, PCL looks expensive, something Barron's says may be "the reward for stewarding its capital and managing the business well."
  • Nevertheless, the article says investors "worry about quality of [the dividend] coverage."
  • With PCL leaning on real-estate sales to raise money, the company "is at a disadvantage in that its landholdings are considered less valuable than rivals," Ward notes, adding that "creative" royalty and rights arrangements generate cash that "isn't considered of the same quality as that produced by operations."
Comments (13)
  • wallace2000
    , contributor
    Comments (56) | Send Message
     
    Timber and Real Estate are some of the strongest hedges against inflation. You get both in Plum Creek PCL owns over 6 million acres of real estate. They are one of the largest land owners in the U.S.

     

    They have also made a large bet on southern pine with the latest acquisition from MeadWestvaco. They are buying these acres at bargain basement prices and I believe this will pay off handsomely for PCL and their investors in the near future.
    4 Jan, 05:36 PM Reply Like
  • Tom Kametz
    , contributor
    Comments (127) | Send Message
     
    Earnings are not that meaningful with a timber company because of large non-cash depletion expenses. Free cash flow is more meaningful.
    4 Jan, 06:39 PM Reply Like
  • toomuchgas
    , contributor
    Comments (546) | Send Message
     
    I thought the added some gravel pits also to their land holdings.
    4 Jan, 06:56 PM Reply Like
  • User 839
    , contributor
    Comments (22) | Send Message
     
    referenced in the article...fr vulcan
    4 Jan, 09:45 PM Reply Like
  • jrpan2
    , contributor
    Comments (30) | Send Message
     
    PCL has weathered the storm in the past .....I'm a long time holder of PCL with divvy reinvestments...Happy I've held for a # of years ...
    4 Jan, 10:03 PM Reply Like
  • The Patriot
    , contributor
    Comments (323) | Send Message
     
    Demand for timber is quite robust in the Southeast. Stumpage prices are rising rather dramatically. If the harvest is large enough, PCL should have a great 2014.
    4 Jan, 10:48 PM Reply Like
  • J Skinner
    , contributor
    Comment (1) | Send Message
     
    Plum Creek has been consistently paying an excellent yield. The company can do this because of their cash flow ( profit plus depreciation and depletion). The company has a very large timber base from which they harvest timber to meet their financial obligations. Additional cash flow is generated from it's manufacturing operations and real estate sales. Demand for timber should grow as housing continues it's recovery, which in turn will drive timber prices and ultimately profits higher in the next two to three years.
    5 Jan, 01:07 AM Reply Like
  • PSalerno
    , contributor
    Comments (3695) | Send Message
     
    I prefer RYN, (recently added some to my position after the recent down move), but lower earning compared to payout is not exceptional in timber companies, especially after an acquisition.
    The Barron's is a little bit superficial, as I do not see any in depth analysis.
    5 Jan, 04:49 AM Reply Like
  • northgoingzax
    , contributor
    Comments (10) | Send Message
     
    As usual they present one side of the story and can't manage to find one bull to quote. They also make the absolutely false assertion that "as rates rise, land becomes less valuable" . They present no data to back this up because there is none. Shoddy, simple minded journalism making the assumption that interest rates are the only factor effecting land prices.
    6 Jan, 07:56 AM Reply Like
  • toomuchgas
    , contributor
    Comments (546) | Send Message
     
    I think the reason for owning timber reits is first to have an appreciating irreplaceable asset and secondly for the income distributions.
    5 Jan, 07:23 PM Reply Like
  • tealone
    , contributor
    Comments (225) | Send Message
     
    No doubt my timing has been off in the past when going long PCL, but "my" bottom line is that I've done better with others in this industry. Have to agree Barrons at this point in time.
    6 Jan, 09:25 AM Reply Like
  • Skezix
    , contributor
    Comments (34) | Send Message
     
    PCL's income is capital gains, so it could cut its dividend without jeopardizing its tax status as a REIT. That's a downside risk, but an improving economy provides great upside potential. That's why PE is high, in anticipation of greater earnings, not less
    6 Jan, 11:34 AM Reply Like
  • Rcsam
    , contributor
    Comments (168) | Send Message
     
    Very superficial analysis --Timber now being valued at $1250 an acre on equity basis and $1650/acre on enterprise value. Replacement value is $2700/acre based on recent transactions. Building a great portfolio for inflation which will come roaring back.
    6 Jan, 12:52 PM Reply Like
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