If you’ve been following my ongoing real estate saga, you know we are selling our home in Dallas. We love the neighborhood, but the house is just a little too small for a family of five.
Selling will be easy. Buying something new is the real challenge. There are a shortage of houses in the size we want. As a result, prices have gotten ludicrous.
Even building something new is a lot more expensive than it used to be. Some materials prices are up several hundred percent over the past year. And good luck finding labor if you do need something built.
Welcome to the world of inflation.
The Federal Reserve insists that most of this will be “transitory,” or not permanent. I tend to agree that price spikes in at least some corners of the market will be short-lived. But I’m not so sure about houses or labor. The inventory of homes for sale is at record lows across many markets in the aftermath of the 2008 mortgage meltdown. Burned by their experience, homebuilders shied away from mass-market construction.
This isn’t something that can be fixed overnight. You can’t snap your fingers and “fix” a decade of underinvestment in housing. And labor is much the same. Once employees get used to a higher paycheck, good luck cramming them back down to lower levels once the supply of labor normalizes.
All of this is to say that inflation is likely to run hot for a while. And that brings me to our dividend stock of the week: timber real estate investment trust (REIT) Weyerhaeuser Co. (NYSE: WY).
Weyerhaeuser owns 11 million acres of timberland in the United States. Apart from planting, growing and harvesting trees, the REIT also has a large forest products business that makes building materials.
If you believe that inflation will persist for a while, owning a timber and forest products business makes all the sense in the world. Timber is unique among non-agricultural commodities because it grows. If demand slacks and you opt to wait longer before harvesting a tree, the tree should be larger and more valuable by the time you harvest.
Weyerhaeuser’s Dividend
WY had to slash its dividend by half last year as the pandemic wreaked havoc on its operations. It currently yields about 1.8%, but I expect to see the dividend recover in no time, particularly if materials prices stay elevated. So, think of Weyerhaeuser as an inflation-proof stock that should post strong returns in the years ahead. And its income stream should rise right along with its stock price.
WY stacks up well on Adam O’Dell’s Green Zone Ratings system with an overall “Strong Bullish” rating of 81. That means it is well-positioned to triple overall market gains in the next twelve months.
Let’s dig deeper.
Growth — Weyerhaeuser rates highest on growth at 93. And remember, this is backward-looking. The REIT managed high growth rates even during a time when construction activity was muted. This rating could go even higher as new construction picks up.
Value — WY also rates well on value at 82. Value stocks have performed well in 2021, and that outperformance may be only the beginning.
Quality — This REIT’s 79 quality rating is a nice surprise given REIT accounting conventions. REITs tend to score relatively low on this metric because our model rewards lean balance sheets. We’ll take it!
Momentum — Weyerhaeuser also rates a very respectable 70 on momentum. This stock is already trending higher despite a rough 2020. As the industry picks up, don’t be surprised to see WY’s momentum accelerate higher.
Bottom line: Overall, Weyerhaeuser rates well, but beyond that it is very well positioned for any inflation ahead. If you’re looking for inflation-hedged income, WY belongs in your portfolio.
To safe profits,
Charles Sizemore
Editor, Green Zone Fortunes
Charles Sizemore is the editor of Green Zone Fortunes and specializes in income and retirement topics. Charles is a regular on The Bull & The Bear podcast. He is also a frequent guest on CNBC, Bloomberg and Fox Business.
