Weyerhaeuser: Building value

Income investors should consider REITs, with this timber and building products company a particular favorite.

By TheStockAdvisors Jun 6, 2013 9:56AM

Home under construction © CorbisBy Chuck Carlson, DRIP Investor


There are two main types of real estate investment trusts: equity REITs invest in and own properties, with revenues coming mostly from rent, while mortgage REITs hold mortgages, generating revenue from interest on the loans.


Both typically have high yields because REITs must distribute at least 90% of their income to investors. Those big yields have been catnip to yield-starved investors in recent years.


Indeed, as a group, REITs have outperformed the S&P 500 ($INX) -- up 43% versus 33% for the five-year period ended March 31, 2013.


When investing in REITs, keep in mind the following:


  • REIT dividends typically don't receive the preferential tax treatment accorded qualified dividends paid by common stocks.

  • Because REITs pay out at least 90% of their income, they don't have a lot of margin for error when it comes to dividend cuts should business falter. Indeed, many REITs cut their dividends during the 2008-2009 downturn.

  • Most individuals already have a big bet on real estate via home ownership. Owning a bunch of REITs increases that exposure.

One REIT that is especially interesting is Weyerhaeuser (WY). The company is one of the world's largest private owners of timberlands, controlling more than six million acres of timberlands, primarily in the U.S. The company manages another 14 million acres under long-term licenses in Canada.


The company is also one of the largest manufacturers of wood and cellulose fiber products as well as a real estate developer.


The housing recovery has been a big plus. This REIT yields 2.5%, on the low end of REIT yields. However, I expect better growth in the payout -- the dividend was recently boosted 18%. The shares offer an interesting play in the REIT space.


Weyerhaeuser offers a direct-purchase plan in which any investor may buy the first share and every share of stock directly from the company. Minimum initial investment is $500.


The company will waive the minimum if an investor agrees to automatic monthly investment via electronic debit of a bank account of at least $50 for 10 months.


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