Why Resolute Forest Products Stock Lost 27% in June | The Motley Fool

What happened

Shares of Resolute Forest Products (NYSE:RFP) were falling back last month as the price of lumber declined sharply, leading to a pullback in prices for its paper and wood products. According to data from S&P Global Market Intelligence, the stock fell 27% in June.

As you can see from the chart below, the stock fell over the course of most of the month.

RFP data by YCharts.

So what

Lumber prices pulled back sharply in June as the boom from earlier in the year continued to correct itself. Buyers like homebuilders waited on the sidelines while supply that had been restricted by the pandemic has come back on line. As a result, the price of lumber futures is now down by more than half since its peak in early May, putting pressure on sawmill operators like Resolute Forest Products.

A man in a sawmill sanding wood

Image source: Getty Images.

The only news out of the company came on June 10 when it said it would pay a $1 special dividend (representing an 8% yield at today’s share price) to shareholders of record as of July 7. The dividend represents the windfall the company experienced from the boom in lumber prices in the first half of the year. CEO Remi Lalonde said, “The cash generated with our lumber platform in these strong lumber markets provides the opportunity to share benefits directly with shareholders.” 

Resolute also said it would invest an additional $50 million in its wood products operations, showing confidence in long-term demand, and it paid off its revolving and term credit facilities, reducing its debt by $180 million. 

Now what

Even with the pullback last month, Resolute shares are still up 85% this year, showing how the lumber stock has capitalized on the boom in the commodity. Still, with the downward momentum in lumber prices, investors might want to be cautious here. The stock should also fall by about $1 after the record date for the special dividend passes.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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