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Weyerhaeuser Raises Dividend Ahead of REIT Conversion

Weyerhaeuser Co., the second-largest owner of U.S. timberland, plans to triple its quarterly dividend to 15 cents ahead of its conversion to a timber real estate investment trust.

The first payment is expected to be made in March, Federal Way, Washington-based Weyerhaeuser said today in a statement. The company will convert to a REIT when it files its 2010 tax return next year and the conversion will be retroactive to Jan. 1, 2010, Bruce Amundson, a Weyerhaeuser spokesman, said today in a telephone interview.

The company is converting to a REIT to reduce the tax on its more than 6 million acres of timberland. Weyerhaeuser paid a $5.6 billion special dividend in September to meet U.S. tax requirements for the conversion.

“From a bond-rating standpoint, I’m comfortable with the increased dividend,” Ed Sustar, a Toronto-based vice president and senior credit officer at Moody’s Investors Services, said today in a telephone interview. “I would be uncomfortable if it was any higher.”

Moody’s rates Weyerhaeuser’s debt Ba1, one level below investment grade.

Weyerhaeuser rose 14 cents to $17.90 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have gained 1.4 percent this year.

‘Sustainable’

The dividend is “one that is sustainable and that we expect to grow over time,” Weyerhaeuser Chief Executive Officer Daniel Fulton said in the statement, adding that the company doesn’t “anticipate significant improvement in the housing market in 2011.”

The increased dividend will boost Weyerhaeuser’s annual gross dividend yield to 3.35 percent, based on the stock’s closing price today, compared with 4.55 percent for Seattle- based Plum Creek Timber Co., a REIT and the largest owner of U.S. timberland.

Weyerhaeuser’s overall tax rate will fall to about 18 percent in 2010 from 36 percent last year, Sustar said in a Dec. 3 note.

The conversion will also cut the company’s cost of capital, helping it to compete with other timber REITs, Fulton said in an interview in July.

To contact the reporter on this story: Christopher Donville in Vancouver at cjdonville@bloomberg.net.

To contact the editor responsible for this story: Simon Casey at scasey@bloomberg.net.

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