We’re halfway through 2025, and Canada’s housing market is showing signs of recovery. After a weak year in 2024, transactions and selling prices are showing modest (sequential) growth. Though still down on a year-over-year basis, transactions and selling prices increased 3.6% and 1.7% month over month in June. This trend of sequential growth, if it continues for several months, could overwhelm the still-sluggish annual growth rates and herald new all-time highs in Canadian housing.
The big takeaway is that demand for Canadian housing remains robust, possibly robust enough to take it to new highs next year.
Given the secular strength in Canadian housing, you might be looking for ways to get exposure. Some obvious choices include banks, which loan money to fund new home construction, and real estate brokerages. These can work; however, the long trade in Canadian banks is getting crowded after years of bullishness, while publicly listed brokerages are few and far between.
An interesting alternative is forestry stocks. These supply lumber (wood), the key building material that goes into building Canadian homes. The more houses that are built, the more demand there will be for Canadian hardwood and softwood lumber. In the ensuing paragraphs, I explore a Canadian forestry stock that yields 6.4% and benefits from strong housing demand.
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Acadian Timber
Acadian Timber Corp (TSX:ADN) is a Canadian timber company that produces softwood, hardwood, pulpwood and biomass products. It owns 775,000 acres of timberland in New Brunswick and 300,000 acres in Maine. More than 90% of the company’s products are sold within its operating region, which means Eastern Canada and New England. So, the company profits from the demand for new Canadian housing in a very direct way. This is in contrast to some other Canadian forestry companies that are primarily involved in exports.
How Acadian Timber benefits from Canadian housing demand
The “Canadian housing” play with ADN stock is fairly evident.
The company sells wood primarily on the domestic market. Homebuilders are some of the biggest buyers of Canadian wood, and it’s a variable cost for them, so the more business they do, the more business ADN does. With that established, let’s look at the financials.
Financials
Acadian Timber has a fairly healthy balance sheet, with a 0.39 debt-to-equity ratio (lower is better) and a 1.165 current ratio (higher is better). Both of these metrics in ADN’s case are in the range investors usually consider acceptable.
Next up, we have growth. Acadian Timber’s growth metrics were mixed in the trailing 12-month (TTM) period: revenue was up 12.6%, but earnings were down 39%. Over the last three- and five-year periods, earnings growth was strong. As for future growth, that should be satisfactory if my prediction of strong housing demand holds up.
Lastly, ADN was quite profitable in the TTM period, with a 17% net margin, a 19% free cash flow margin and a 5.85% return on equity.
Valuation
Last but not least, we can briefly review ADN’s valuation multiples. ADN gives a mixed showing on valuation, trading at the following:
- 24.5 times earnings
- 2.84 times sales
- 0.84 times book
- 11.3 times cash flow
Apart from the price-to-earnings ratio, these multiples suggest that ADN stock is fairly cheap.
Foolish bottom line on Acadian Timber
All of the financial and valuation metrics I’ve looked at for ADN check out. On top of that, the stock boasts a 6.4% dividend yield, with a mere 50% free cash flow payout ratio. Investors should keep in mind that this is a commodity stock subject to lumber price volatility. But on the whole, I think it looks promising.
