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Timberland REITs are a small and sometimes forgotten part of the overall REIT landscape. These companies, which own nearly 15 million acres of land across the United States, may not command headlines but are behind much of the building in the United States.

Because of that, a change in interest rates may provide a bit of a tail wind. So far, it hasn’t been a strong year for timberland REITs. Nareit data shows that total returns were down 9.58% for the full year as of Aug. 30, making them the biggest laggard among REIT sectors. However, Nareit notes that returns improved during the third quarter.

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One reason to look at timber REITs is the potential for growth in the housing market. In August, housing starts were up 3.9% year over year. If the decline in mortgage rates leads to an increase in the purchase of new homes, that could be a tail wind not just for homebuilder stocks but for timber REITs. Lumber prices have been low over the past several years after spiking in 2021 and 2022. 

The biggest REIT in the timber market is Weyerhaeuser (NYSE:WY). The company owns 10.5 million acres in the U.S., mainly in the South and Pacific Northwest. It also has 14 million acres licensed in Canada. Weyerhaeuser offers a mix of wood products and operates 35 manufacturing facilities.

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Another part of the Weyerhaeuser story is sustainability. The company recently announced a collaboration with The Nature Conservancy. The two companies will focus on joint research projects and expanding forest-based climate solutions. Weyerhaeuser harvests approximately 2% of its forests annually and has conservation agreements across many of its timberlands. It is involved in both the carbon credits market and carbon sequestration. While these are small parts of the business, they could become more valuable over time. 

Investors looking to Weyerhaeuser for solid dividends should exercise caution. The company has a dividend yield of 2.43% with an annual payout of $0.80. Weyerhaeuser suspended its dividend for part of 2020. Since then, despite strong lumber demand, it has not returned to pre-pandemic payout levels. Sometimes, depending on stock price performance, it issues a special dividend or allocates funds for share repurchases. 

This could change if the housing market heats up and demand for lumber increases. Insiders may agree. According to Benzinga data, over the last several months, two members of Weyerhaeuser's board of directors purchased stock. Albert Monaco bought 31,500 shares for $31.38 each in August, and James Calvin O’Rourke purchased 7,800 shares in September for $32.01.       

There's no guarantee that lumber prices will rise, and Weyerhaeuser will face risks from wildfires and other climate-related issues. However, the prospects for growth remain strong. Falling mortgage rates should boost homebuyer demand. With low home inventory, homebuilders have an ongoing opportunity to meet the need for new homes – and that's going to require a lot of lumber. 

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This article Do Lower Interest Rates Mean This Timberland REIT Is Set To Soar? originally appeared on Benzinga.com