Every country, including advanced economies, has concerns that need fixing without delay. In Canada, the housing shortage is one of the major predicaments. The federal government, the private sector, and other stakeholders must collaborate to solve a looming crisis.
The Bank of Canada’s move to lower interest rates and, hopefully, make more cuts in the ensuing months should provide relief and reduce homeownership costs as well. On the investment front, the lumber industry, in general, and Acadian Timber (TSX:ADN), in particular, could benefit immensely from tailwinds relating to the housing shortage.
Also, this high-yield Canadian stock could be the top-of-mind choice of income investors. ADN could dominate the TSX in 2024 and beyond. At $17.50 per share, the dividend yield is a generous 6.6%. Given the 66.7% payout ratio, the quarterly payouts are well-covered by earnings and should be relatively safe.
Timberland owner
The $304.4 million owner of timberland manages around 1.1 million acres of freehold timberlands in New Brunswick (segment 1) and Maine (segment 2), and provides timber services. It also supplies forestry products in Eastern Canada and the Northeastern United States.
Acadian Timber sells softwood and hardwood sawlogs, pulpwood, and biomass by-products to regional customers. The company also develops carbon credits for sale in voluntary carbon credit markets. In Q1 2024, management achieved the first significant sale of carbon credits.
Investment takeaways for Acadian Timber include diversified end-use markets, variable cost structure with minimal capital requirements, and growth opportunities through strategic acquisitions. Its sustainable harvesting plans support cash flow stability, while renewable resources could provide perpetual returns.
Financial performance
In the three months ending March 31, 2024, timber sales (and services) and net income increased 6.8% and 7.2% to $23.9 million and $6 million, respectively, compared to Q1 2023. Free cash flow (FCF) jumped 108.7% year-over-year to $7.8 million. According to management, timber sales volumes reached 247,000 cubic metres (a 35% year-over-year increase) due to increased contractor availability.
Acadian President and CEO Adam Sheparski said, “Achieving our first significant sale of carbon credits, entering a renewable energy option to lease, and purchasing additional timberlands in New Brunswick, together with solid results from our timber operations, resulted in a compelling first quarter of 2024.”
“Rebounding timber sales volumes stemming from the hard work by the Acadian team to improve contractor availability and the pending monetization of our remaining registered carbon credits are expected to result in a robust fiscal 2024,” Sheparski added.
Q1 2024 was also the first reporting period for Acadian’s carbon credit project. The company agreed to sell 752,000 registered voluntary carbon credits in Maine. Acadian Timber expects to generate an additional 1.1 million credits over a 10-year crediting period.
Moreover, Acadian executed an agreement for the option to lease around 10,000 acres of its Maine timberlands. The purpose is to develop, construct, operate, and maintain a solar-powered electric generating facility.
High demand for years
Acadian Timber maintains a positive outlook owing to the rate-cutting cycle in Canada and the stability of the northeastern forestry sector across the border. Other compelling reasons to invest in the stock are the improving long-term demand for new homes, and repair and remodel activity. Its products should be in high demand for years.
