Forest Products, Paper & Packing

Companies in the Paper & Forest Products Industry primarily operate in the paper, lumber/building supply, and timberland markets. Those serving the paper segment produce various products used in magazines, envelopes, containerboard, and food and beverage packaging. Others in the building materials category supply commercial and residential construction companies with oriented strand board, siding, engineered and composite wood items, plywood, paneling, and particleboard. Industry members focused on the timberland market have vast forest tracts in the Pacific Northwest, Southeast, Canada, and overseas (e.g., Brazil), and manage them as valuable commodities and real estate holdings. A good number of these are structured as Real Estate Investment Trusts (REITs).

Investments in production machinery, harvesting equipment, land, and distribution make the industry capital-intensive. The sector, having a long history, is mature, but company operating results are dependent on the macroeconomic cycle. Paper & Forest Product stocks, with their high payout ratios and dividend yields, have a tradition of stability, albeit interspersed with substantial volatility during severe swings in business activity. The REITs, which are required to pay out nearly all their earnings as dividends, offer the best yields.