I've been receiving various emails plugging a "retirement plan" called the Pinchot Plan. If you sign up you could collect thousands of dollars in checks every year, or so the article says. Sound intriguing? Read on.
Who is this mysterious Pinchot and what is this plan? was born in 1865 and was the first chief of the United States Forest Service, as well as twice being Republican Governor of Pennsylvania.
2007-05-14 22:39 | Posted by | http://www.grahaminvestor.com http://www.grahaminvestor.com/the-graham-investor-blog/archive/2007/02/01/how-to-start-your-own-pinchot-retirement-plan
I haven't been tempted to subscribe to the newsletter to find out all the details, because it's pretty clear that the "Pinchot Plan" companies are a select group of lumber or forestry REITs ( ). Just by noting the information in the article, it was easy enough to find out what they are by doing a quick Google:
LFB - Longview Fibre, $20.71 4.50% yield
PCL - Plum Creek Lumber $40.20, 4% yield
PCH - Potlatch $47.59, 4.20% yield
RYN - Rayonnier $41.97, 4.50% yield
POPEZ - Pope Resources $42.50, 2.60% yield
LFB and PCH paid out special dividends of a whopping $7.54 and $15.15 per share respectively in 2006, but it seems that these were a one-off related to their conversion to REITs. (Now if someone could give me a list of all companies that are going to convert to REITs soon, that would be great!)
Apparently according to the article, "if you owned 2000 shares in each of these investments, you would have collected $77,360 in dividends over the past two years". It seems to me that this amount includes the one-off special dividends for the aforementioned conversion to REITs, so that is a "lucky" $45,380. Ongoing dividends for a portfolio of 2000 shares of each of these 5 stocks at current prices will surely be less than 20,000 per year on an investment worth a shade under $400,000.
What about capital growth? Here are approximate prices two years ago:
LFB - $15
PCL - $35.50
PCH - $45.50
RYN - $30
POPEZ - $25
The only two that have had outstanding returns in a two year period are Rayonnier and Pope Resources, but all have done well in the long-term. Sustainable forestry is a fairly safe investment by any standards, and these stocks are certainly pretty good long-term investments. However, I think the article may well have over-hyped the returns a smidgen.
Still, anyone who is into value investing will also want to have a portfolio of high-dividend paying stocks such as these. Why settle for 4% though, especially when it's possible to find stocks paying dividends of 8% or more if one looks hard enough. Closed-end funds are a case in point. One I particularly like is the Zweig Total Return Fund, ZTR, which pays a 9% dividend (around 8% after expenses). Marty Zweig's ZTF fund is almost a "perpetual money machine", churning out returns on a regular basis. Closed-end funds trade like stocks and you can buy and sell them during market hours (unlike Mutual Funds which you can only buy at closing prices).
ZTF has pretty much trended downward in price since 1994, but this is only half the story, since the Net Asset Value has recently started increasing after several years of ZTF trading at a discount to NAV. An optimal strategy for buying Closed-end funds might be to screen for those with a high dividend that are currently trading at a discount to Net Asset Value.
Closed-end funds can be screened at the website.
My preference is to look for CEF's trading at a discount to NAV with high dividend
yields. (Select, say, 1 month Market Return. Also select Discount, and optionally Expense Ratio of 1% or less. The screen won't let you sort by yield/discount so you have to do it manually.
There are actually stocks paying huge dividends. One of the most frequently discussed is Bermudan-based crude oil shipping company Frontline, owned by Norwegian magnate which is currently paying an annual dividend of $10 per share. The shares are currently trading at $31.84. Jim Cramer of "Mad Money" seems to be , which could be a Good Thing because if FRO drops further as a result, savvy investors might be able to lock in a dividend yield of truly amusing proportions. But watch those earnings. Cramer's negativity on FRO stems from the fact that high earnings in the last year have been largely due to the high price of oil, and as oil falls those earnings will come down, and so will the dividend. I don't disagree with Cramer totally, but even if oil falls to $35/barrel, there will still be demand for it - perhaps even more than at $55/barrel plus, especially in Asia, and someone still has to move all that oil around.
Dividend stocks are great to hold in a retirement account, especially if the dividends are reinvested and you pay attention to capital growth as well, i.e. consider the total return of dividends plus capital gain. A 10% annual dividend is not much good if the underlying asset
drops 20% during the holding period.
NOTE: To avoid having to reply to everyone individually, I have created a FAQ regarding the Pinchot Plan.
Our recent article entitled "What the Heck is a Pinchot Plan?" probably left out a lot of potential detail. For one thing, we missed mentioning the Sixth "Pinchot Retirement Investment", simply because it is a Canadian business and was pretty difficult to sleuth on the web. Talk about not being able to see the wood for the trees!
A good deal of searching has thrown up TimberWest, a company trading on the Toronto Stock Exchange. The ticker on Yahoo! is TWF-UN.TO, on the Toronto Exchange it trades as TWF.UN
According to , "Distributions on the Company's Stapled Units have provided an average annual yield of more than 10% since inception. Given the low-risk profile of the investment, it has been and continues to be a safe haven for investors looking for better than average returns and low risk". Trees grow fast in Vancouver Island where TimberWest has most of its acreage, which is exactly what you want for maximum return on investment. Sustainable forestry using the Pinchot Model can certainly .
It's unlikely that a formal "Pinchot Retirement Plan" actually exists. You probably have to create your own. The most obvious way is to take a portion of your investment funds, say 20-30% and build holdings in each of the six "Pinchot Plan Stocks" within an existing tax-deferred retirement account such as a Traditional or Roth IRA (US), a self-select ISA or SIPP (UK). It's highly likely this strategy will blow away any employer-provided pension.
To recap, the "Pinchot Plan Stocks" (REIT's actually) and their websites where you can get lots of investor information are:
- , RYN - owns large swathes of timberland in Florida, Georgia and Alabama
- , PCL - mainly Seattle area
- , PCH - Minnesota, Idaho, Arkansas
- , LFB - Oregon, Washington State
- , POPEZ - Seattle, West Coast US
And there you have it. These lumber/timber REITs (Note: Pope resouces is a ) should provide you with both capital growth and dividend yields within a tax-deferred retirement account. You can then reinvest the dividends in the same companies or use them to invest in a different strategy. In my personal ROTH (and SIPP in the UK) for example I try to invest 25% in dividend paying stocks, 40% in BMW Method stocks and the balance in Intrinsic Value or low Price/CFO plays as found in the Graham Investor screens.
If Ben Graham were alive today, he'd probably be doing something similar - a combination of defensive, enterprising and aggressive investing.
2007-11-05 16:33 | Posted by