Let’s Grow some Dividend Trees, WY

Pine Tree
Pine Tree

Happy Friday dividend stock buying day. Dividend investing is often compared to planting trees. They start off small, but one day, they become a mighty oak tree. Or if we thick of an orchard, a bunch of fruit trees are planted. After planting many trees and waiting for some years to pass, we can start collecting our fruits from our trees, or apple tree dividends perhaps. Apples, peaches, plums, pears, and whatever else we decided to plant. Or in our case, our trees happen to be dividend stocks. Or even more specifically, this post is about a dividend stock that grows trees.

Today, on our radar, we noticed that Weyerhaeuser (WY) just bought Plum Creek (PLC) for $8.4 billion. This will become a $23 billion timberland REIT. It will bring them up to 13 million acres. They were founded over 100 years ago in Washington state. In 2010, they became a REIT to save on taxes which makes they pay out 90% of their profits in dividends.

While a lot of mergers often cause companies to struggle for years while all of their systems are brought together, we believe Weyerhaeuser (WY) should have an easier time on the average. When 2 airlines merge together, you need to make sure all of the systems are working together. There are all of the regulation, computer systems, safety system, maintenance, and many other critical systems. While I do not have access to everything that Weyerhaeuser (WY) will need to do to merge the 2 companies, I can make some assumptions. They have a lot of acres to merge together, but it does not need to be done overnight. Maybe 2 forest that are close together can be merge into the same department. Sales teams that sell to the same customer groups can be merge together. It can be a step wise process, not 1 major undertaking, allowing them the freedom to do it logically.

Some of our other picks are planning or have done recent breakups, such as Alcoa (AA). This will diversify us into a large major merger. It is good to consider multiple sources of diversification. While maybe this diversification is not needed, because some of our other picks will merge eventually, it is nice to take a note of it for future reference, for when we review our portfolio in the future.

Looking at Weyerhaeuser (WY), they have a dividend growth track record of 5 years. Merging the companies together will hopefully keep the track record going. Although the merger gives greater risk to a dividend cut in the near term, this could be a great entry point into much higher dividends in the future. Also, with all sorts of low commodities prices right now, when prices do recover, it will eventually allow for a lot more profits/dividends. Weyerhaeuser (WY) is currently profitable. While our PE of 31 is on the high side, we do have a nice dividend of 4.5%, and REITs often have higher PE. While the merger may create some near term risk, it will allow for a lot of growth in the future. On top of this, a quick look at their site shows they have related products, such as Recreational Access, Minerals, Oil, and Gas. Which makes sense with their large amount of land, it allows for multiple uses.

Today, we invested in 10 shares of Weyerhaeuser (WY). Including the commissions to plant this dividend tree, we spent $284.00. We are going to start earning $12.40 for a year.

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