Entering text into the input field will update the search result below

Weyerhaeuser's Tax Advantaged Dividend Helps Harvest Capital Loss Carryforwards

Apr. 12, 2023 11:56 PM ETWeyerhaeuser Company (WY)10 Comments


  • A big loss is not the end of the world. It can be recovered.
  • This article will show you how to take advantage of the capital loss for tax purposes.
  • Weyerhaeuser is a great business with tax advantaged dividends for those with capital loss carryforwards.
  • Looking for a portfolio of ideas like this one? Members of Portfolio Income Solutions get exclusive access to our subscriber-only portfolios. Learn More »
Packed piles of lumber

Tarcisio Schnaider/iStock via Getty Images

This article will show you a means of recovering as much as 20% of your capital losses depending on your tax bracket. In brief, capital losses are a valuable asset and Weyerhaeuser (NYSE:WY) is among a small handful of stocks that can convert capital losses into cashflow.

Attention shareholders of CS, ARKK, FRB, COIN, various cryptos, and anything else that collapsed

Even as 2023 is a mostly sideways year in the market there are huge pockets of volatility. As such, one could be up overall on the year and still have significant losses from certain positions.

Banking was of course one of the areas that has been hit.

  • Credit Suisse (CS) is down 87% in the last 12 months
  • First Republic Bank (FRC) is down 91%

Speculative negative earnings areas have also been clobbered.

  • ARK Innovation ETF (ARKK) is down 37%
  • Bitcoin (BTC-USD) is down 32% on the 52 week chart, even inclusive of the 2023 rally
  • Coinbase (COIN) dropped 57% over the last 52 weeks

Unless one timed these positions perfectly, chances are most shareholders are either sitting on a massive loss or already sold at a loss.

That’s okay. It happens to everyone. It is nearly impossible to be an investor and not have the occasional strikeout.

The key is what you do after to recover.

Holding on to these speculative and/or failed companies in hopes of a recovery seems dubious at best. There is a much more reliable way to recover at least some of your losses and that has to do with a capital loss.

Capital losses are a valuable asset, and when used correctly, can be turned into tax free income.

Taxation of dividends – the key to unlocking capital loss carryforwards

Most S&P dividends are taxed at the qualified dividend rate. Having a capital loss will not help you here.

Most REIT dividends come in the form of Section 199A distributions which are taxed at the ordinary income rate but also come with a 20% deduction. Again, a capital loss will not help you.

However, there are a select few REITs that are designed to provide dividends as capital gains which allow one to wash those dividends with capital loss carryforwards to receive tax free dividends. At Portfolio Income Solutions, we have catalogued the tax treatment of over 150 REITs' dividends which allows us to identify which dividends are most favorable for a given situation.

For those who have a capital loss carryforward, Weyerhaeuser comes with a significant advantage. This timber REIT has a special kind of dividend which comes as a mix of capital gains and return of capital. Since income generated from the sale of standing trees is considered a capital gain, the dividend can be classified as a capital gains dividend. The characterization varies slightly year to year, but this was the breakdown in 2022.

Chart, pie chart Description automatically generated

Portfolio Income Solutions REIT Dividend Characterization Spreadsheet

Capital gains dividends can be washed with the capital losses.

If one has $10,000 of capital loss and received $10,000 of capital gains dividends, those dividends are tax free.

Return of capital dividends are not taxed at the time of dividend receipt, but rather reduce the cost basis of the stock. With the now lower cost basis, one’s capital gain upon selling that stock is larger and these capital gains can be washed with the capital losses.

Since capital gains are taxed at 20% for the highest tax bracket or slightly lower for lower tax brackets, the functional savings from a capital loss carryforward is as high as 20%.

Thus, through owning WY stock and collecting its high dividend yield, one can functionally recover up to 20% of their losses by utilizing the capital loss carryforward in addition to whatever returns Weyerhaeuser generates. Readers are encouraged to contact their tax advisor to determine the impact for their individual situation.

Weyerhaeuser dividends

Prima facie, WY appears to have a rather modest 2.55% dividend yield.

Graphical user interface, application Description automatically generated


At that pace, it would take a long time or an absolutely massive investment in WY to use its capital gains taxation to recover one’s loss.

However, in addition to this base yield, WY pays special dividends each year proportional to their excess EBITDA.

  • In October of 2021 they paid $0.50 per share.
  • In February of 2022 they paid $1.45 per share.
  • In February of 2023 they paid $0.90 per share.
Graphical user interface Description automatically generated with low confidence

S&P Global Market Intelligence

These special dividends get the same favorable tax treatment and functionally take the yield to over 5%.

Going forward, the size of the special dividends will depend on EBITDA. 2022’s $1.45 payment was atypically large because lumber prices were exceedingly high resulting in WY having billions of dollars of excess cashflow.

With timber and lumber prices back to a more normal level I suspect the recurring special dividends will be closer to the $0.50 or $0.90 of 2021 and 2023, respectively.

Even at that lower level, WY’s yield is around 5%.

WY as an investment

While tax free dividends are nice, that alone is not enough to warrant investment. For this to be a viable recovery strategy, WY itself also has to have the ability to perform.

I have been in and out of Weyerhaeuser for the better part of a decade depending on valuation and other factors and today is among the better times to own WY. Specifically there are 3 reasons I like the stock.

  1. Generally strong business model
  2. Upcoming drivers of growth
  3. Valuation

Wood products are a cyclical business so it does ebb and flow with the economy, but in analyzing a business this can be smoothed out to estimate the long term run rate. So while the market tends to love WY when housing is hot and hate WY when housing starts are lower, I would encourage thinking more about the average across a cycle.

After adjusting for cyclicality WY clearly has a strong business. They are fully vertically integrated owning the timberland that feeds their sawmills. Waste is minimized by using the pulpwood that is too low quality to form proper lumber to make engineered wood products like particle board. At each level of production WY has achieved among the highest efficiency in the industry making their overall EBITDA margins superior.

A growing catalyst

The Inflation Reduction Act is proving to be a huge deal with regard to spending on green type investments.

Note that in discussing this I intentionally remain non-political. This is neither praise nor criticism of the policy, just an analysis of how it impacts business.

The IRA makes just about everything green viable to invest in whether or not it would otherwise be viable. The subsidies are extremely generous which is creating a boom of capital spend. The relevance to WY is in carbon capture initiatives and there are a few ways in which they can profit.

  1. Trees naturally capture carbon so there could be carbon lock-up agreements with companies looking for carbon offsets.
  2. Wood is being increasingly encouraged for construction and furniture as a means of locking up carbon. So while WY would not receive direct payments it is a demand boost to their industry
  3. Direct Air Capture (DAC) has long been considered too pricey to be viable but with the generous subsidies of the IRA, DAC projects are taking off.

#3 is not speculative as WY already has a DAC contract with Occidental Petroleum (OXY). OXY is renting a substantial amount of land from WY in which to pull carbon out of the air and inject it deep underground. The actual footprint of this is tiny so WY can still fully use its land for timber and functionally double dip on its revenue stream. OXY has ambitious plans to expand this program and WY has plenty of land on which it could be done by either OXY or someone else.

A secular increase in homebuilding

The U.S. has about a 15 million home shortage. Homebuilders estimate their pace of building over the next 10 years will have to be substantially higher than it was in the past. As homes are one of the largest demand sources for lumber and other wood products I suspect the stabilized prices for wood products will be higher in the next decade than in the previous.

This bodes well for cycle average EBITDA and margins for WY and should lead to some ample special dividends.


WY is a very asset-heavy business. It consists mostly of land, mills and manufacturing facilities.

Such things have a clearly defined value in the private market so one can time their investment in WY with when the stock is cheaper than the value of its assets.

This is one of those times. As seen in the chart below, WY is trading at a 30% discount to net asset value.

Graphical user interface, chart, line chart Description automatically generated

S&P Global Market Intelligence

Land tends to grow in value over time so buying land at 70 cents on the dollar tends to be a good investment, especially when it comes with a well operated business like WY.

The bottom line

WY stock strikes me as an opportunistic investment at current pricing and is made even more attractive if one has capital loss carryforwards with which to wash the dividend and make it tax-free income.

So far, Portfolio Income Solutions subscribers consist largely of investment professionals, whether current or retired. That’s great, I love having an educated readership as they ask questions that challenge me to dig deeper. At the same time, I believe financial information should be available to all and that financial education is foundational to success in life. As such, I have launched REIT University, a new branch within Portfolio Income Solutions and am offering a large discount to those who want to learn.  It contains a crash course in fundamental investment and goes deep into REIT specific analysis.  

Grab a free trial and start learning today!

This article was written by

Dane Bowler profile picture

Dane Bowler is the Chief Investment Officer and a registered investment adviser at the 2nd Market Capital Advisory Corporation. He has over a decade of experience running a proprietary portfolio with a specialization in REITs. On-site property tours and critical analysis of REIT management help inform his selection process.

Dane leads the investing group Portfolio Income Solutions along with Simon and Ross Bowler. Features of the service include: a diversified high-yield REIT portfolio, data tables on every REIT, tax guidance, macro analysis, fair value estimates, and quick updates via chat on breaking news. Learn More.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of WY either through stock ownership, options, or other derivatives. 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.

All articles are published and provided as an information source for investors capable of making their own investment decisions. None of the information offered should be construed to be advice or a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. The information offered is impersonal and not tailored to the investment needs of any specific person. Readers should verify all claims and do their own due diligence before investing in any securities, including those mentioned in the article. NEVER make an investment decision based solely on the information provided in our articles. It should not be assumed that any of the securities transactions or holdings discussed were profitable or will prove to be profitable. Past Performance does not guarantee future results. Investing in publicly held securities is speculative and involves risk, including the possible loss of principal. Historical returns should not be used as the primary basis for investment decisions. Commentary may contain forward looking statements which are by definition uncertain. Actual results may differ materially from our forecasts or estimations, and 2MC and its affiliates cannot be held liable for the use of and reliance upon the opinions, estimates, forecasts, and findings in this article. 2MC does not provide tax advice. The material contained herein is for informational purposes only and is not intended to replace the advice of a qualified tax advisor. S&P Global Market Intelligence LLC. Contains copyrighted material distributed under license from S&P 2nd Market Capital Advisory Corporation (2MCAC) is a Wisconsin registered investment advisor. Dane Bowler is an investment advisor representative of 2nd Market Capital Advisory Corporation.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

Comments (10)

What are some other dividend stocks or reits taxed this way?
Thanks for the article B/L
Dane Bowler profile picture
@Big Louie Not many taxed the capital gains way. There are more that are taxed as a return of capital though which is also quite nice because it defers taxation until the shares are sold.
bear_mkt profile picture
@Big Louie I'm no tax expert, but I understand that there's a quirk in the tax laws that makes the lumber companies the most likely suspects. Here's PotlatchDeltec for example. 100% LTCG in 2022. DYODD & YMMV.

bear_mkt profile picture
A good article...and one of the reasons why I bought WY a long time ago. I liked the stock for portfolio diversification and the tax benefits were a little something extra. I wasn't keen on their divvy change to low regulars plus an extra. Although now I'm used to it. Its quite similar to what other commodity companies do, like the E&P companies - a small regular plus an extra.

FWIW, lumber futures -- which I think of as the pulse of the housing industry -- are down 66% from last year for all the well known reasons: higher interest rates, recession fears, unwinding of tight supply chain issues etc. So if you are a contrarian, with a long view, this may be a good time to take a look at WY. Just my opinion. DYODD.
Greatly appreciative of the detailed article and insights. Thank you.
Excellent article. As a tax CPA I love that you provided the tax advantages along with the investment thesis. It is now on my list to do more due diligence. Thanks.
Dane Bowler profile picture
@carolynbayliss Thank you. Taxation is a huge part of investing and unfortunately gets often overlooked.
cfrd profile picture
any investor knows already that loss-carry-forwards are used to shelter income, by divs, or other qualifying income.
is QY a buy without that foolhardy suggestion?
Dane Bowler profile picture
@cfrd Most dividends are NOT sheltered by loss carry forwards.
CincinnatiRick profile picture
@Dane Bowler Perhaps need to more heavily emphasize that the dividends are largely or wholly classified as LTCG for tax purposes and are offset against capital losses BEFORE we even get to the ADDITIONAL capability for using (up to $3000) of capital losses to reduce one's generic taxable income that is apparently muddying the waters for @cfrd
I've been enjoying this feature for a decade or so now and periodically add whenever it approaches my basis in the lower twenties.
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!

About WY

SymbolLast Price% Chg
Div Rate (TTM)
Yield (TTM)
Short Interest
Market Cap
Compare to Peers

More on WY

Related Stocks

SymbolLast Price% Chg
To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.