Shares of Weyerhaeuser (WY -0.32%) rose 8.8% in April, according to data provided by S&P Global Market Intelligence. Considering that the S&P 500 tumbled 8.8% last month, that was a particularly impressive showing.
A couple of factors helped drive the timberland-focused real estate investment trust’s (REIT) shares higher. It acquired some more timberland and reported strong first-quarter results.
Weyerhaeuser announced plans to purchase 80,000 acres of high-quality timberland in the Carolinas last month, which will boost its holdings in the region to 900,000 acres. It’s paying $265 million for highly productive land that should generate adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $13 million a year over the next decade. There’s also “significant optionality to capture additional upside from real estate and natural climate change solutions,” the REIT noted in its press release regarding the deal.
“This transaction is a great example of our ongoing efforts to enhance our portfolio with high-quality, well-managed timberlands that generate solid returns for our shareholders,” said CEO Devin Stockfish. “These Carolina timberlands are strategically located, well-integrated with our existing operations and offer very attractive timberland attributes, and they will provide strong cash flows for our Southern Timberlands business.”
The timberland REIT also reported strong first-quarter results last month. It generated record adjusted EBITDA of $1.5 billion and returned more than $1.3 billion in cash to shareholders. That included increasing its base dividend by 5.9% and distributing a supplemental dividend based on its 2021 results.
Meanwhile, the company provided strong second-quarter guidance. While management does anticipate adjusted EBITDA in the timberland segment will come in significantly below the first-quarter number, it still expects results to be higher than any other quarter since the end of 2018. Meanwhile, it foresees improved results across its real estate, energy, and natural resources segment and wood products business.
Weyerhaeuser’s strong first-quarter showing and optimistic outlook for the second quarter bodes well for investors. The company has a unique dividend framework for a REIT: It pays a fixed quarterly base dividend that it can sustain even if market conditions deteriorate. In addition, it targets to return 75% to 80% of its annual adjusted funds available for distribution to investors via supplemental dividends and share repurchases.
This REIT appears poised to return more cash to investors this year. Because of that, it offers investors lots of upside potential if timber and wood prices remain strong. That makes it an intriguing option for investors who are bullish on the lumber market.