Always Question The Assumptions: Why Barron's Is Wrong About Plum Creek Timber

Read Beyond the Headline

Put Every Recommendation through a Reality Check

Financial journalists have hard jobs. They need to come up with new and, hopefully, interesting topics every day, week or month depending on their deadlines. It is considered a coup if you can attract a CEO to speak with. Thus it’s a faux pax if you don’t have nice things to say about their company.

Perhaps that is why this week’s Barron’s was so positive on the shares of REIT (real estate investment trust) Plum Creek Timber (PCL). Judging by the headline below, and its teaser, you might think PCL had been a big winner in recent years.

Plum Creek Timber enjoyed good success from its 1989 IPO through 2007. Since then, however, profitability has stalled and cash distributions have barely budged. 2005's EPS established an all-time high of $1.76. Barron’s projects $1.28 in per share earnings in 2015.

PCL’s quarterly distributions totaled $1.68 in 2008, even with an ultra-high payout ratio of 123%. Plum Creek paid just 8-cents more, or $1.76 per share, during 2014. That is a meager 4.76% cumulative increase over six full years. The payout ratio continues to handily exceed reported earnings, leaving little room for future boosts.

As of Jan. 9, 2015, continuous shareholders dating back to 2007’s peak are down almost $4 per share. Buy-and-hold types had another crack at taking profits when PCL momentarily hit $60 during 2008. Those who hung in there for the yield have given back a cool 27.6% from that top, excluding dividends.

PCL underperformed the broad market over the most recent 1-year,3-year and 5-year periods. Despite that, Plum Creek has been quite tradable, based on fluctations in valuation.

This REIT trades more like a 'bond substitute' than a normal stock. Its yield averaged 4.31% over the most recent seven years. PCL’s average P/E over that full span was 31.5x.

Investing well is easier than it might seem.

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