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Tuesday February 16, 2010
Potlatch (PCH): Timber!
By Nathan Slaughter, editor Half-Priced Stocks
Potlatch (NYSE: PCH) owns plenty of them, with a portfolio of 1.6 million acres spread throughout Arkansas, Idaho, Minnesota and Wisconsin. That forestland produces a steady harvest year in and year out. Timber production has been rising at a healthy +9% annual pace, reaching 4.4 million tons before last year's slowdown 
Roughly 80% of those trees are sold to outside customers. What's left is shipped to the firm's own manufacturing facilities and used to produce plywood, particleboard and lumber. Management has also been unlocking shareholder value by selling non-core land to private investors. Potlatch unloaded tens of thousands of acres at an average price of $1,530 per acre last year. The company has other inventive ways to squeeze additional revenue out of its land. For example, much of its real estate in southern Arkansas is leased to duck hunters, while other property generates income from oil/gas leases, grazing rights and recreational permits to ATV riders. These ancillary activities chipped in an extra $4.5 million last year.
The company pays a quarterly distributions of $0.51 per share -- for a towering yield of 6.7%. Action to Take--> As housing starts to rebound from the steepest slump on record, Potlatch should see both volume and pricing pick up. In the meantime, even after deferring a portion of its harvest until conditions improve, the company is still generating ample cash to comfortably meet its dividend. Potlatch has zero debt coming due in 2010 and only a trifling amount maturing in 2011. Looking ahead, the push for biomass as a green energy fuel alternative to coal could be a major growth driver. We also expect dozens of additional real estate transactions -- the company is sitting on 3,000 miles of prime lakefront footage. With a healthy yield and a nice discount to Fair Value, Potlatch is an attractive idea for patient investors willing to wait for the housing market to heal. Learn more about this financial newsletter at Nathan Slaughter's Half-Priced Stocks. |
News Flash
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In a world where complex derivatives contracts and other paper assets can evaporate at any time, it's refreshing to own something real and tangible -- and you can't get much more solid than a tree. 
Add it all up, and you're looking at a business that managed to churn out $127 million in funds from operations (FFO) in 2009. That's a healthy +13% increase over 2008, despite the lingering impact of the recession. As a REIT, most of that cash is funneled to shareholders.