Quick note on a personal sell

By Travis Johnson, Stock Gumshoe, November 10, 2014

This is just a quick note to let you know that I sold my holdings in Rayonier (RYN) after the earnings release this morning. I did so with some reluctance, since their strategic changes are going to make Rayonier a better company going forward… but I also think they will make it a worse investment in the next year or two at these prices ($30 or so).

The stock took a huge 10%+ hit after announcing earnings this morning for a couple reasons, but mostly because they announced their strategic review of operations would have them cutting harvest rates considerably and reducing their real estate sales going forward, which led them to reducing their dividend to 25 cents ($1 annualized), and because investors were probably a bit concerned with their restatements of past depletion rates due to some miscalculations about their inventory (crediting themselves for timber that they can’t likely harvest, either for regulatory or economic reasons).

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Though their core operations in the Southeast are doing reasonably OK due to strong pine demand (homebuilding and pulp), the Northern and New Zealand forests are weak due to — can you guess? That’s right, lower Chinese demand (those markets spiked in the past couple years from Chinese homebuilding demand, they came back down in the last six months or so). So as a timber company, they’re doing OK but not great — which would normally be fine for me, timber is something you hold through thick and thin as a way to diversify. But they have maintained their dividend in recent years partly because of real estate sales (largely in Northern Florida and Southern Georgia, where they’ve long had some land that has development value and), apparently, partly because they’ve been pretty dramatically overharvesting their Pacific Northwest forests for a decade to feed that Chinese demand.

So they’re cutting back on the Northern harvests (by almost 40%), and on the land sales, and are going to plan for more sustainable cash flow from a steadier harvest going out into the future. I think that’s probably a very good thing for the business, but it’s not likely to please investors over the next year or so as they re-adjust investor expectations. I may buy back in if Rayonier can hit a sustainable dividend of 4% or more, which at the projected dividend would mean a price ...

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