Did you know that investing in timber and forestry is a strategy that could provide you with a nice return on investment capital? Timber investments are a great opportunity and are an alternative form of investing. I think they can definitely provide investors with some diversity in this volatile market. Forested land, for instance, is becoming even more popular with the big players as they seek a good hedge against inflation and try to maximize their leverage, while reducing risk. You don’t actually have to go and chop down a tree and keep wood in your home to invest in timber, either –there are plenty of ways to invest!
Why Timber Investing? Diversified Investments
Investing in something like timber may seem weird at first for people, and I understand, but I like the idea of investing in timber or forestry and after this article I think you will, too. The reason is because people always are going to need more firewood and land is really scarce!
Think of it this way - the population continues to grow every single year, but land is a finite resource! Therefore farms and things like timber will ALWAYS have value.
Fact: The price of timber has risen by an average of 5% for the past century. Even during some pretty bear markets. Did you know this?Credit: fao.org
*The Only Chart You Need to See for Convincing*
This will really get you excited - according to a Seeking Alpha article, “During the Great Depression, when stocks fell roughly 70%, timber investments soared by more than 200%.” This is pretty amazing returns on your money and gains in your purchasing power!
An investment in timber is a good hedge against inflation and a good way to invest in land or real estate. Inflation Proof Your Portfolio because trust me, inflation is certainly coming.
Forest Mangement and Planning Book
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(price as of Aug 16, 2016)
There is also limited amount of timber available for use and this has created an interesting supply and demand situation, which should led to a higher price in timber in the near future. So these 5 percent annual returns could very well turn into 10 or even 15 to 20 percent annual returns!
Inflation Hedge and Protection With Timber - Better Than Gold?
As more money is printed by the federal reserve in the United States, prices for much needed goods like food and even timber should go higher, as well as the price of gold, silver, copper and other metals.
With 5 percent inflation annually, I think the price of timber has the potential to increase at least 10 percent a year because it is a desired commodity like land is.
You don’t have to buy private timber land to invest, either. There are a number of equities on the market whose business consists of owning timber land and/or the harvesting of timber.Credit: specullector.com
Two Forestry and Timber REIT's to Watch
Potlatch (PCH) and Plum Creek Timber (PCL) are two stocks or REITs that I keep an eye on regularly.
PCH Potlatch Info. - PCH is a real estate investment trust (REIT) that owns and manages timber lands located in Arkansas, Idaho, Minnesota and Wisconsin in the United States. Market cap of $1.64 billion currently, trading around $40 a share. They have a nice dividend yield of 3.1 percent and a price to earnings ratio of around 60, but a forward P/E of much lower.
Plum Creek Timber Info. - They are a bigger and safer company that PCH, with a market cap of over 7 billion now. They are not a stock, rather a Real Estate Investment Trust (REIT) They are a trust that owns and manages timber lands in the United States and their products include lumber products, plywood, medium density fiberboar, etc. Plum Creek has a share price of around $46 currently and pays a 3.7 percent yield.
Rayonier Inc (RYN) - is another one. RYN engages in the sale and development of real estate and timberland management, as well as in the production and sale of cellulose fibers in the United States. With a market cap of 6.6 billion they have a share price of about $54 and they pay a nice 3.3 percent yield.
Best Timber ETF to Own? - In my opinion, it's WOOD .
WOOD (iShares S&P Global Timber & Forestry Idx) is perhaps better than a stock or REIT because you get a lot more diversity in your investments. "The underlying index is comprised of about 24 of the largest publicly traded companies engaged in the ownership, management or upstream supply chain of forests and timberlands." 1.3 percent yield and so far this year the fund is up over 20 percent!
Learning More About Timber Investing and Forestry Economics
This book below introduces you to all aspects of the management and economics of forestry if you are looking to invest in timber physically and not in the stocks.
The author, John E. Wagner, has 20 years of experience teaching and working in the field of forest resource economics. This is a great read if you really want to learn more about the business and want to be more than a casual investor!
Amazon Price: $69.95 $40.16 Buy Now
(price as of Aug 16, 2016)
I hope this article on timber investing has convinced you that timber can make a great alternative investment to your portfolio!
Timber has a lot of potential this decade and beyond because of its historical performance against inflation. With no signs of inflation stopping because of rampant money printing by central banks around the world, timber's upside is really, really high.
Other areas of investing I think will do well include farmland, precious metals like gold and silver, platinum, copper, coal, oil, and basically any other hard assets or things that people need like food and water.
Thanks for reading this article on investing in timber and forestry!