By definition, owning timberland is a boring asset class. A forest grows at its own pace, and every once in a while, you harvest some logs to generate cash flow and keep the woodlands healthy. This sort of “boring” and non-correlated nature – pun intended – is why the asset class has been praised by large endowments and institutional investors. Timber is a ballast for more volatile equity holdings.
So, it’s very interesting that timberland and lumber have become growth elements in recent months. Thanks to several tailwinds, lumber has quickly become one of the best-performing asset classes this year – surging by triple digits to hit highs not seen since 2007. The best part is that demand and the tailwinds for lumber prices may not abate anytime soon.
For investors, this presents an interesting opportunity. Playing lumber mania doesn’t mean we need to take huge risks. In fact, it only strengthens the reasons to buy timberland in the first place. And that’s cash flows and dividends.
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