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Plum Creek Timber Investing: Timberland Investments Are Boring, But They’ll Make You Rich
By Dr. Steve Sjuggerud, Chairman, Investment U
Monday, August 15, 2005: Issue # 461
“Buy shares of Plum Creek Timber” That’s what I told attendees at the Agora Wealth Symposium late last week in Vancouver.
Plum Creek Timber (NYSE: PCL) “owns” the state of Mississippi. It also owns the state of Wisconsin. And the state of Maine
Okay, not really. But Plum Creek is one of the largest landowners in each state in the U.S. In fact, Plum Creek Timber owns about 8 million acres of timberland, well diversified across the nation, as you can see in the chart below:
Even better, Plum Creek is currently valued by the stock market at roughly $8 billion (that’s the “enterprise value,” which is the most appropriate figure in this case). So by buying shares of Plum Creek today, you’re paying about $1,000 an acre for shrewdly managed timber.
Why timber investments as part of your investing strategy? I’ve gone over this in past Investment U E-Letters but in short, timber has beaten the stock market over the long run, with less volatility. Amazing! One look at the following chart of Plum Creek Timber versus the stock market since 1989, and you’ll see what I’m talking about:
Plum Creek Timber vs. the Stock Market: It’s No Contest
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Plum Creek: Up 1,200%
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The S&P 500 Index: Up 200%-Plus
Buying Plum Creek at $1,000 an acre for 8 million acres is a no-brainer
If $1,000 an acre for prime timberland wasn’t cheap enough a full 1.3 million of Plum Creek’s acres have been designated by the company as “higher and better use” lands. That basically means lands that will be sold to a developer someday – at much higher values than the value of the timber alone.
“Boring” Plum Creek Timber: From $3 To $35, and At $1,000 An Acre, It’s Still Cheap
The chart above also includes dividends reinvested. I mention this because this is an important part of your investment: Plum Creek pays a 4%-plus dividend. This dividend comes from the sustainable harvest of timber every year, and from selling off some of the higher and better use lands at large profits.
Why Else Does Timber Look Attractive as an Investment?
One of the main reasons is because the trees don’t know about the war in Iraq, or the housing bubble, or the Nasdaq bust. They just keep growing exponentially on the stump, at a rate that would make most big companies envious.
In addition to the compound growth of the trees, the value of the wood has gone up at a rate of 3% a year above inflation, for the last 90 years, according to legendary investor Jeremy Grantham. So the trees grow exponentially, and the prices of the wood go up, too. Nice.
China and oil take up all the headlines. That’s fine. Timberland investments will never be the toast of the cocktail party. They’re boring But they sure can make you rich over time.
Right now, Plum Creek Timber is the easiest way for individual investors to own a diversified portfolio of timberland, all in one stock. Fantastic land, all across the country, at $1,000 bucks an acre, paying you a 4% dividend now that’s a deal.
Check out Plum Creek Timber (http://www.plumcreek.com). If history is any guide, timber may turn out to be a safer place to invest than the stock market or the real estate market over the next five years.
Good investing,
Steve
Today’s Investment U Cribsheet
- To read more about commodity investments like timber, read our interview with investor Jim Rogers.
- Timberland Stocks: Why It’s Time to Knock on Wood for Profits… Literally
- Hug a Tree… Bag Some Profits
- Biofuels: Don’t Let This Alternative Energy “Greendoggle” Fool You
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