Summary: Unlike most real estate investment trusts (REITs) that rent property to tenants, timber REITs hold and manage timberland or land used to grow timber. This guide will mention what makes timber REITs different from other such investments and list the top 3 timber REITs to invest in 2024 using a regulated third-party brokerage like eToro.
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What are timber REITs?
Real estate investment trusts (REITs) generally represent companies that own and manage income-producing real estate, including residential and commercial real estate.
However, Timber REITs work differently.
While REITs are commonly associated with a steady stream of passive income, timber REITs’ income depends on the commodity, and they earn it by selling timber and related products. The price of commodities like oil, coffee, cattle, and wood is volatile. Therefore, timber REITs’ income fluctuates according to the supply and demand of the commodity on the market, similar to other cyclical stocks like petroleum producers.
That said, these assets are still an excellent way for investors to receive exposure to wood, lumber, and other commodities through a diversified real estate portfolio. Furthermore, the law mandates that REITs redistribute at least 90% of their income to shareholders as dividends.
Top 3 timber REITs to invest in
As a result of a comprehensive analysis, we present to you our selection of the three best timber REITs to invest in this year:
- Weyerhaeuser (NYSE: WY);
- Rayonier (NYSE: RYN);
- PotlatchDeltic (Nasdaq: PCH).
1. Weyerhaeuser (WY)
The Weyerhaeuser Company (NYSE: WY) is one of the world’s biggest private owners of timberlands, with about 11 million acres in the U.S. and approximately 14 million acres under long-term licenses in Canada. Established in 1900, the company has been a prominent supplier of lumber for more than a century.
Based in Tacoma, Washington, Weyerhaeuser operates its forests and land based on sustainability and following international forestry standards. In 2022, it generated over $10 billion in net sales. Furthermore, the company is a component of the S&P 500 index.
WY stock price today
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2. Rayonier (RYN)
Rayonier Inc. (NYSE: RYN) is a prominent timber REIT with some of the U.S. and New Zealand’s most productive softwood timberlands. In 2023, Rayonier owned or leased under long-term contracts around 2,8 million acres in the U.S. South (about 69%), U.S. Pacific Northwest (about 17%), and New Zealand (about 14%).
Based in Wildlight, Florida, the company’s stock is a core component of the S&P 400 index.
RYN stock price today
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3. PotlatchDeltic (PCH)
PotlatchDeltic Corporation (Nasdaq: PCH) is a REIT with a significant timberland portfolio in Arkansas, Alabama, Louisiana, Idaho, Minnesota, and Mississippi, amounting to nearly 1.9 million acres.
Although primarily dealing with land, it also operates several sawmills, a plywood mill, a real estate development business, and a rural timber sales program. Furthermore, the company upholds sustainable forestry standards and a dedication to long-term stewardship of its natural resources.
The REIT’s headquarters are in Spokane, Washington. Its stock is a core component of the S&P 400 index.
PCH stock price today
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How to invest in top timber REITs: Step-by-step
Investors looking for a detailed guide on the timber REITs investing process should follow these steps:
Step 1: Choose a broker
Before investing in these assets, you need to gain access to the stock market first. You can simply acquire it by employing a regulated online brokerage.
To securely invest in top timber REITs, we recommend eToro:
- Commission-free stock and ETF trading;
- 2,000+ stocks from 17 exchanges;
- Fractional shares available;
- Charting tools;
- User-friendly platform.
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For additional investment in REITs, consider the following guides:
- Top 5 Office REITs to Invest in;
- Top 5 High Dividend REITs to Invest in;
- Top 5 Data Center REITs to Invest in;
- Top 5 Appartment REITs to Invest in;
- Top 5 Data Center REITs to Invest in;
- Top Farmland REITs to Buy;
- Top 5 Industrial REITs to Invest in;
- Top 3 Self Storage REITs to Consider;
- Top 5 Hotel REITs to Consider;
- Top 5 Mortgage REITs to Invest in;
- Top 5 Cell Tower REITs to Invest in;
- Top 5 Net Lease REITs to Invest in.
Step 2: Open and fund your account
After deciding on a brokerage, you should create and verify your account. The investing platform will promptly email you the correct instructions.
The next step is to prepare to invest in timber REITs by transferring some money into your account. Traditionally available funding methods include bank transfers, debit or credit cards, and transaction services like PayPal.
Step 3: Decide how much you want to invest
Keeping within your budget limits is crucial; going beyond can cause financial disaster due to a debt spiral. To avoid this, make sure you have performed the following:
- Paid off all high-interest debt, such as credit cards and personal loans;
- Created an emergency fund that covers at least three months of daily life expenses.
Step 4: Place your order and buy timber REITs stock
The next step is to place an order and purchase the shares in timber REITs:
- Step 1: Log into your brokerage and find the ticker symbol of the REIT you wish to invest in;
- Step 2: Designate the sum or the number of shares you want to purchase;
- Step 3: Select the order type (market order or limit order) and place it;
- Step 4: Confirm the trade order.
Pros and cons of investing in timber REITs
Pros
- Diversification: Timber REITs can diversify your portfolio as they often have low correlation with other assets like stocks and bonds, which can help reduce overall portfolio risk;
- Inflation hedge: Timber is a commodity. Therefore, it is a physical asset, and the value of timberland tends to increase with inflation. This can act as a hedge against inflation, protecting investors’ purchasing power;
- Stable income: Timber REITs usually earn income through the sale of timber and can provide a regular income stream through dividends. Although a commodity, the demand for timber tends to be relatively consistent, contributing to a reliable revenue source;
- Sustainable investment: Timber REITs focus on sustainable forestry practices, promoting responsible land management. Investors interested in environmentally friendly and socially responsible investments may find timber REITs attractive.
Cons
- Environmental risks: Timber REITs are susceptible to natural disasters such as wildfires, pests, and disease. Such risks can reduce the health and growth of the timber, potentially affecting the revenue generated from timber sales;
- Cyclical nature: The timber industry is cyclical, and timber value fluctuates based on supply and demand dynamics. A downturn in construction activity, housing markets, and global economic conditions can influence timber prices;
- Market risk: The value of timber is affected by market conditions, economic cycles, and factors affecting the real estate market.
Common mistakes to avoid when investing in timber REITs
Make sure to avoid these common investing mistakes:
- Lack of research: Research the trends in the price of the commodity, along with the timber sector, before investing;
- Lack of strategy: Set your goals before you spend any money;
- Staking everything on one asset: Always diversify your portfolio;
- Falling prey to scams: Avoid illegal platforms and suspicious deals;
- Fear of missing out: If the numbers do not add up, do not invest: it is better to miss out than lose money;
- Stop chasing yield: Going after suspiciously or unsustainably high yields can backfire. There is no such thing as a free lunch.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
FAQs about how to invest in timber REITs
What are timber REITs?
Timber REITs operate land and property used in timber production, sometimes even wood manufacturing facilities and lumber mills. Alternatively, these REITs can also profit from conservation efforts or land conversion for housing.
Why should I invest in timber REITs?
Timber REITs expose investors to the timber and wood market without the risks and downsides of physically trading the commodity. Additionally, REITs come with dividend payments to investors, as 90% of their taxable income has to be returned to shareholders.
How do I invest in timber REITs?
Investing in timber REITs is virtually the same as investing in regular stocks. You need to register an account with an investing service and buy the shares, just like regular companies.
What are the top timber REITs to invest in 2024?
Some of the top timber REITs to invest in now include Weyerhaeuser (WY), Rayonier (RYN), and PotlatchDeltic (PCH).
Do timber REITs pay dividends?
Timber REITs must pay 90% of their taxable income as dividends. All of the REIT stocks listed here are dividend stocks.
What is the yield of timber REITs?
The timber REITs we mentioned have the following yields as of January 2024: Weyerhaeuser: 2.28% div. yield; Rayonier: 3.65% div. yield; and PotlatchDeltic: 3.83% div. yield.
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