The Fed, by all appearances, is gearing up for another round of quantitative easing.
Some FOMC board members such as San Francisco Fed President, John Williams, were already stated proponents of more stimulus. But now even Federal Reserve Chairman, Ben Bernanke, has admitted to Congress that if unemployment conditions don’t improve “obviously we’ll have to consider other steps.” (Yes, “other steps” is just Bernanke being obtuse.)
On the other hand, Federal Reserve Bank of St. Louis President, James Bullard, isn’t a fan – and with good reason.
Further easing, if pushed too far, he says, “could reignite a 1970s-type experience.” In other words, if we’re not careful, we could have another nightmarish scenario of runaway inflation on our hands.
No, QE3 isn’t yet set in stone. But the likelihood of added stimulus is growing by the day, and investors would do well to hedge against the inflation it will almost certainly bring with it.
But there’s actually an even better, lesser-known inflationary hedge you should consider: timber.
Timberland is such an excellent inflation hedge that it outperformed nearly every other asset class on a total return basis between 1987 and 2011, according to a report by the Campbell Group.
What’s more, if worse comes to worst and QE3 causes inflation to go 1970s-style ballistic, then timber should be the best hedge of all. As Louis Basenese points out:
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“During bouts of runaway inflation, like we experienced from 1973 to 1981, timberland really outperforms. In fact, it was one of the top-performing hedges, increasing by an average of 22% per year.”
Here’s the best part: I’ve identified a prime investment candidate for a timberland company that can go toe-to-toe with whatever fiscal horrors the Fed unleashes… and it’s an excellent dividend payer…
Inflation Hedge and High-Yield Payer
Rayonier (NYSE: RYN) is an international forest products company that’s structured as an REIT. The company owns, leases, or manages approximately 2.7 million acres of timberland and real estate throughout the world, primarily in the United States and New Zealand.
The company’s been paying dividends for 18 years and has a current dividend yield of 3.39%, offering an annualized dividend of $1.60.
This week, Rayonier announced a further dividend increase of 10% from $0.40 to $0.44, payable on September 28, 2012 to shareholders of record on September 14, 2012.
This marks Rayonier’s eighth increase in the last 10 years and eleventh overall – more than enough to show that the company’s CEO is serious when he says that “providing a secure and growing dividend to Rayonier shareholders remains a key strategic objective.”
Also in the offerings from Rayonier is a Dividend Reinvestment Program, which, as I’ve said before, has many advantages for the investor who can dispense with quarterly income.
Making it an even more attractive long-term dividend investment, Rayonier is a strong stock performer, returning 9.24% over the last year and an average of 12.36% over the last five years versus returns of just 1.74% and –0.23% for the S&P 500 over the same periods.
Bottom line: If quantitative easing gets out of hand, hot and heavy inflationary days might be just around the corner. Rayonier is an excellent hedge against this possibility.
Even if you’re convinced the Fed has everything under control (really?!), Rayonier qualifies as an excellent long-term investment on the merits of its dividend history alone.