Thanks for your comment. Regarding the “96 checks”, some companies actually pay monthly dividends. ZTR (thanks for the correction) does. Hence 8×12 = 96.

I agree, dividend investing is all the rage these days. Probably rightly so with low taxes on dividends. Of course if you can invest in dividend stocks within a tax deferred account and reinvest the dividends then even better.

Another dividend-investing strategy that could be used as an adjunct to Pinchot type stocks is the “Americas Oil Pension” (A.O.P.) strategy being touted by the same newsletter. This strategy apparently advocates – again, I have not bought the newsletter, rather I did my own searching – investing in stocks like Kinder Morgan Energy Partners (KMP, yielding 5.9%), Teppco Partners (TPP, yielding 6%), Holly Energy Partners (HEP, yielding 5.5%) among others.

Apparently high-dividend investing is all the rage among the newsletter writers these days. In the same mail I got the ‘Pinchot’ pitch, I got another one from Oxford Club touting eight high-dividend stocks that will return (so the pitch says) 96 dividend payments per year. Not sure how 8 stocks with quarterly dividends adds up to 96 checks, but that’s what it says.

Dick Young has been advising this strategy (i.e., high and consistent dividend payers for a long time. I’m starting to think it’s not a bad screen. Financials can lie, dividends can’t, at least not without a pretty glaring red flag going up.

One nit to pick — the Zweig Total Return Fund symbol is ZTR, not ZTF.

Mack

For purposes of comparison I looked at Pope, Rayonier, Potlach, and Plum Tree. I looked at both cash flow (using EBITDA as a good proxy for cash generated by operations) as well as the underlying value of the real estate owned by each. Ideally we’d all like to buy assets at a discount to their value and/or a stream of future cash flows cheaply, preferably with a wide margin of error.

First I compared the ratio of market cap to EBITDA. This gives you the multiple that you’re buying the cash flow for, similar to a p/e but without all the non-cash stuff that can distort earnings:

Rayonier: 9.7
Potlach: 11.22
Plum Tree: 12.17
Pope: 7.1
S: 7.1

I used the current price of $43 for Pope. Note that before this latest run up Pope’s ratio was 5.7 at a price of $34. Next I took a look at what you were buying in terms asset value. If you bought today and liquidated the company, what would you get for your money: ie purchase all the equity, pay off the debt, and sell the assets.

The ratio I used is enterprise value (market cap + debt – cash) to an estimate of total real estate value. Caveats: most companies have assets and value over and above their real estate, so this in somewhat conservative. I split the holdings into timber and residential/higher better use, so for Pope that’s 114,000 and 3,000 acres respectively. For pricing I used $1,100 per acre for timber and $20,000 for residential. The timber is on the low end of the typical PNW transaction range of $1,100 to $1,200, while I think the residental is conservative given the company’s holdings and past transactions but it’s really a bit of a SWAG. Here’s what you get:

Rayonier: 1.38
Potlach: 1.45
Pope: 1.08
Plum Tree: 48.58

At a per share price of $34 Pope’s ratio was 0.94, meaning you could buy $1.00 worth of assets for $0.94. As noted above, this assigns no value to ongoing operations such as consulting, lumber or fibre production capabilities, etc. Clearly that’s were a lot of Plum Tree’s value is. It’s also where Pope’s growth is likely to come from.

Finally, I looked at growth potential. Contrary to a couple of prior posts, I like the private equity fund strategy, which is very similar to what Brookfield and Macquarie have done very successfully. Not only does Pope get to coinvest in a fund with enough scale to compete against other TIMO’s to purchase attractive smaller timber parcels at a decent price, but they collect all the fees for managing the private equity fund! That’s a nice bit of leverage. I also like that fact that they raised their stake from $5 to $10 million and aligned everyone’s interest Pope, the fund’s advisor, now owns 17% of the fund.

I also like to see management’s skin in the game through widespread stock ownership. For example, Brookfield mandates that officers and directors build up share ownership equal to three times their annual compensation within five years of joining the company. The best part is they are expected to buy it by taking part of their salarly in stock. That’s aligning interests. Pope’s CEO holds 4.1 times his annual compensation in Pope units, and the CFO holds 2.7 times his. Not bad, but wider management interest is always better.

Management has also done a nice job of communicating with shareholders. I especially liked the presentations from the private equity roadshow that lay out their age stratified timber holdings.

Overall, my take is Pope is a nice buy and hold stock for the long-term. For me it passed the “would I be happy buying it and not looking at the investment for the next 5-10 years” test. I believe management will be able to successfully increase their timberlands under management through their private equity fund strategy, and increase both EBITDA, the dividend, and thus the stock price over time. With a conservative estimate of a dollar in assets for each dollar in market cap, I also don’t see much downside risk. I do think at $43 the company is fairly valued, versus a nice discount at $34, and still has considerable upside over the long haul.