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Topic: How To Invest

High-yielding timber firm looks to profit from U.S. housing recovery

High-yielding timber firm looks to profit from U.S. housing recovery

Pat McKeough responds to many requests from members of his Inner Circle for specific advice on stocks to buy as well as questions on investment strategy and the economy. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. While we reserve our buy-hold-sell advice for Inner Circle members, these excerpts provide a great deal of information and analysis on stocks we’ve covered for members of Pat’s Inner Circle.

Recently an Inner Circle member asked us about a Canadian stock whose success depends in part on the state of U.S. housing. Acadian Timber, which is 44% owned by Brookfield Asset Management, manages millions of acres of forest and sells to customers in Canada and the northeastern U.S. Pat examines Brookfield’s contribution to the company’s expansion plans and looks at the how the pace of the U.S. housing recovery will affect Acadian’s growth prospects and high dividend.

Q: Hello Pat: I am curious about your thoughts on Acadian Timber. Thanks much.

A: Acadian Timber (symbol ADN on Toronto; www.acadiantimber.com) supplies forest products in Eastern Canada and the northeastern U.S.

Acadian owns and manages 1.1 million acres of timberlands in New Brunswick and Maine and provides management services for 1.3 million acres of Crown-licensed forests. With a total of 2.4 million acres under management, Acadian is the second-largest timberland operator in New Brunswick and Maine. It also owns and operates a forest nursery in Second Falls, New Brunswick.

The company’s products include softwood and hardwood sawlogs, pulpwood and biomass (wood waste for burning in power plants). It sells these goods to over 100 regional customers.

Brookfield Asset Management Inc. (symbol BAM.A on Toronto) holds a 44.9% interest in Acadian.

Brookfield to help Acadian finance purchase of more timberlands

In the three months ended June 29, 2013, Acadian’s revenue rose 9.5%, to $15.6 million from $14.3 million a year earlier. Cash flow per share rose 9.1%, to $0.12 from $0.11.

Acadian holds cash of $5.4 million, or $0.32 a share. Its $75.6-million long-term debt is a reasonable 36% of its $207.5-million market cap.

The company aims to grow beyond Eastern Canada and the northeastern U.S. by purchasing timberlands outside these regions. To do this, it will take a share of investments made by Brookfield Asset Management.

To help Acadian finance these acquisitions, Brookfield has agreed to buy up to $50 million of Acadian shares over two years.

Brookfield’s relationship with Acadian is a plus overall, because it can provide financing and considerable operating expertise.

The stock has a very high 6.7% dividend yield on its quarterly payout of $0.20625 per share.

In the Inner Circle Q&A, Pat examines the prospects for a continued recovery in the U.S. housing market and whether Acadian will be able to sustain its high dividend. He concludes with his clear buy-hold-sell advice on this stock.

(Note: If you are a current member of the Inner Circle, please click here to view Pat’s recommendation. Be sure to log in first.)

COMMENTS PLEASE—Share your investment experience and opinions with fellow TSINetwork.ca members

A housing collapse in the U.S. triggered the financial crisis that began in 2008. Many commentators have been warning of a “housing bubble” in several major Canadian cities. How much credence do you put in these reports? Do they affect the way you look at your investments?

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