WY Issues Dividend Guidance - Analyst Blog

Weyerhaeuser Co. (WY) came out with its dividend guidance for the fiscal year 2011 on December 13. The company's board of directors expects paying a 15 cent per share quarterly dividend in 2011.

The announced quarterly rate is three times the company's previous dividend rate of 5 cents and equates to an annualized rate of 60 cents per common share. The first payment of the revised dividend is expected to be paid in March 2011. Weyerhaeuser targets a dividend payout ratio of 75 percent of Funds Available for Distribution (FAD) over time.

The company will elect for a REIT conversion while filing its 2010 tax return, retroactive from January 1, 2010. Conversion into a REIT structure would lower Weyerhaeuser's tax liabilities due to lower taxes on REIT, qualifying timberlands income. The effective tax rate of the year is estimated to be approximately 18.5%.

Apart from its dividend guidance, management provided its outlook on the housing market for 2011. Significant improvements were least expected in 2011, with a positive long-term outlook based on favorable macroeconomic conditions and acceleration in housing starts.

Management also anticipates incurring $95 million of impairment charge in 2011 related to the ongoing review of the company's Wood Products system capacity and $15 million on certain real estate assets.

Weyerhaeuser remains one of the leading US forest product companies with approximately 6.6 million acres of timberland in North America. We believe the company stands well positioned to manage its timber portfolios with its conversion into a REIT structure. These along with effective cost control initiatives, solid balance sheet, and robust guidance bode well for the company's future growth prospects.

However, the positives are offset by concerns over the industry's sensitiveness to macroeconomic conditions and its cyclical nature.  Three of the company's five business segments are highly dependent on the US housing market, which is still at the early stages of recovery after plunging badly following the recent economic crisis.  Weyerhaeuser also faces stiff competition from privately held Canfor Corporation, International Paper Co. (IP), and Louisiana-Pacific Corp. (LPX). 

We currently expect the company's performance to be in line with the market and, thus, maintain a Neutral recommendation on the stock.