The cost of lumber has increased 300% in the past 12 months, according to statistics from the National Home Builder Association. The reason is simple economy – increased demand and limited supply. When the pandemic began, house building stopped and many sawmills and wood processing facilities closed. Then the home improvement and construction boom started at the start of last summer and the mills went from too much wood to not enough very quickly.

Demand has not shown any sign of ebbing and trees are slow to grow, so supply will keep timber costs high for some time. Another reason the wood supply is declining is that sawmills cannot keep pace with processing felled wood. On top of that, rising softwood lumber costs could likely increase because the US Department of Commerce said last week that it would like to increase tariffs on Canadian lumber from 9% to 18.32%.

This provides a great opportunity for investors to participate in what is likely to be a growth trend for some time. Better yet, these three timber real estate investment trusts (REITs), CatchMark Timber Trust (NYSE: CTT), Department (NYSE: RYN) and PotlatchDeltic (NASDAQ: PCH) all offer a dividend yield of at least 2.7%.

PotlatchDeltic balance gives it an advantage

PotlatchDeltic just increased its dividend in December from 2.5% to $ 0.41 per share. At today’s prices, that works out to a return of 2.72%. The company’s shares have risen over 69% in the past 12 months and over 18% this year.

Unlike the other two REITs, PotlatchDeltic is on both sides of the lumber industry. It owns 1.8 million acres of lumber land in Alabama, Arkansas, Idaho, Mississippi, Louisiana, and Minnesota, but through its taxable subsidiary, it operates a plywood mill and six sawmills.

In the first quarter, PotlatchDeltic reported net profit of $ 131.1 million, up 31% sequentially and from a loss of $ 16.8 million during the same period in 2020. He said revenue of $ 354.2 million, up 5% from the previous quarter and 69.5% the same period in 2020. Cash flow from operations of the company of $ 169.9 million easily helped cover its $ 27.5 million dividend expense in the quarter and was up 17.6% sequentially and 251% year over year.

Although lumber prices can be volatile, the company has increased its EBITDA margin by 86.5% in the past three years since Potlatch’s merger with Deltic Timber in 2018. Thus, it appears to have not only become a bigger business, but also a business that is more efficient.

Data by YCharts.

CatchMark shows increased revenue

CatchMark is a forestry REIT that owns 1.5 million acres of forest land. Timber REITs buy land, grow trees, sell harvested trees or land, and then start over. The beauty of wood REITs is that they use a renewable resource.

CatchMark’s stock has risen over 56% in the past 12 months and over 12% this year. In the first quarter, the company’s reported revenue was $ 27.7 million, up 7% year-over-year, while the company reported a net loss of $ 0.6 million. million, an 87% improvement over the same period in 2020. The company had $ 12.9 million in Adjusted EBITDA, stable year-over-year.

CatchMark, which owns forests in the South and Northwest Pacific, has a quarterly dividend of 1.35 cents per share, which works out to a current yield of 4.46%. The dividend is well covered. In the first quarter, the company distributed $ 6.6 million in dividends but had $ 11.6 million in cash from operations, up 3% year-over-year.

Rayonier’s size gives it an advantage

Rayonier is the second forestry REIT behind Weyerhaeuser, with 2.7 million acres of timberland in the United States and New Zealand. The company’s shares have risen over 55% in the past 12 months and over 27% this year.

The company’s first quarter numbers impressed no one – revenue was down 26% year-over-year and operating profit was $ 28.5 million from $ 38.6 million for the same period in 2020, but the most important figure for a REIT – cash from operations – has increased significantly. The company said it had $ 53.9 million in cash from operations, up from $ 29.2 million in the same period in 2020 and well above $ 37.5 million. that it had announced to have paid in dividends.

The company offers a quarterly dividend of $ 0.27 per share, which works out to a return of 2.84%. What is also exciting is that the company is finding a variety of uses for its forest lands, such as renting sites for beekeepers or installing a wind farm on a ridge.

Rayonier finalized its purchase of Pope Resources in May 2020 for $ 554 million, giving Rayonier a greater forestry presence in the Pacific Northwest. In the first quarter, this segment was a positive for the company with adjusted EBITDA of $ 17.6 million, up 81% year-over-year.

How long will this opportunity last?

It is reasonable to ask whether it is too late to buy forestry REITs and whether a boom year ahead has already been taken into account on the stock market. Rising lumber prices have caught a lot of people off guard and they might as well go down. However, the possible addition of tariffs on Canadian lumber is a further wrinkle that could help keep US lumber prices high. There is also a fairly large wooden ditch. Lumber companies cannot suddenly increase production, so supplies will likely be limited for some time.

Of the three dividend stocks, I like PotlatchDeltic because of its balance and overall financial strength, not just this year, but for the past three years. I also like CatchMark because of its higher dividend which is well covered by its cash flow from operations. It also showed a nice increase in income which seems to continue this year. Rayonier’s declining revenue is a concern and one of the reasons I prefer the other two REITs, although his purchase of Pope Resources seems to be paying off.