TimberWest Forest Corp (TWF-UN:TO)
China needs timber for every project being built. But China lacks forests. Only about 16% of China's land is covered by forests. China needs to import most of the wood and timber it consumes. One recent study estimates that the merchantable forest stock has declined by 77% between 1950 and 1995. China needs wood for growth,but its domestic market cant supply it all. Today, for example, China has to import 75% of its wood pulp,the raw material for making paper.
From 1972-2001, an investor in timber saw average annual returns of over 14.5%. If you had invested $10,000 in timber in 1972, you'd be sitting on over half a million dollars by now. That's better than stocks, property/real estate and bonds. Timberland is a conservative yet high-yielding investment, an excellent choice for clients who can afford to put their money in for the longer term. Timber investments have consistently beaten the stock market and generated an average annual return of 14.5% for the last 30 years, and yet most investors will have totally overlooked this asset class. Very few people will have Timber as an assetclass in their portfolio, simply because few people actually understand timber well enough to invest in it.
There are lots of different ways in which timber companies can produce revenues, besides just the timber itself:
Biological Growth of Trees. This is where 65% to 75% of timber returns come from. The trees are genetically engineered from superior stock, treated with specially designed herbicides and pesticides, and constantly monitored in order to increase the chances of survival and growth. Timber stands provide income at various points throughout each rotation.
But it's not just the wood that makes these trees so valuable. Forests are also responsible for producing products such as adhesives, turpentine, waxes, polymers, gunpowder,medicines (such as aspirin & quinine), charcoal, and fertilizer.
Pine Straw. This is bundled up and sold as mulch in garden centres and nurseries.This spin off alone, generates over $50 million in sales annually in the U.S.
Seed Collection. Evergreen trees drop pinecones. That's how they reproduce. On a tree farm, these cones are collected and sold to places like China, where the trees don't grow naturally.
Land-Use Fees. Timber companies allow hunters, birdwatchers, campers and hikers to access their lands for a fee. These fees contribute to the overall profitability of the company.
But of course the ace in the hole is the fact that timber companies own large tracts of land in good locations near major highway interchanges or hectares just beyond the outskirts of developing areas, like booming towns, or expanding cities. If major developers become interested these tracts of land can be sold off for big profits.
TimberWest owns so much land that its holdings are bigger than some states in the U.S. Most of TimberWest’s holdings are on Vancouver Island, Canada. The company owns 11% of the island. This is prime tree-growing country. TimberWest owns the the high quality woods and that’s exactly what Asian buyers want. Even better, TimberWest is ideally situated to pick up some large real estate sales as well. The land it owns around Vancouver Island is stunning.
In the 2006 Third quarter results Timberwest Stated " The real estate side of our business continues to be strong with third quarter real estate sales at $2.1 million, comparable to $2.2 million for the same quarter last year. However, on a year-to-date basis, real estate sales are considerably ahead at $19.0 million compared to $4.2 million for the comparative period in 2005. The value per hectare sold continues to increase and has averaged $26,000 this year. This compares to a 2005 year-todate average of approximately $15,000 per hectare and to an overall historical average of approximately $10,000 per hectare. With our intention to expand our real estate business, we continue to develop our plans
and look at ways to maximize the value of this part of our business for our unitholders". These real estate holdings can act as a buffer for weakness in export log and lumber markets and may augment the Company's ability to fund distributions in the longer term. This makes TimberWest corp a low risj investment. By buying into TimberWest you get 825,000 acres of prime timberland. Of that, there may be as much as $200million in land sales potential. Plus you get a rock solid 8% dividend. This dividend is sustainable. The company recognizes that its shareholders appreciate a stable dividend payment. The company has paid $0.27 per quarter since 1998.
And by charter, it plans to pay $1.08 dividend per share per year until the year 2038, at least. Timber has been a great performing asset over the long term.
Buy TimberWest Forest Corp (TWF-UN:TO)