Tuesday, January 30, 2007

Unusual Trust Stocks

The publicly traded trusts are different from regular stocks in that the earnings that are generated avoid double taxation. There is no taxation at the corporate level, only at the shareholder level. In addition, income that is distributed may be tax deferred. Most investors have heard of real estate investment trusts which invest in properties and/or mortgages, and oil & gas income trusts which receive income from gas and oil well royalties.

Oil income trusts have become so popular in Canada that the Canadian government has passed a law to end the pass through benefit in the next few years. What has happened in Canada is that other non-oil companies are jumping on the trust bandwagon. So you end up getting such stocks as a beer trust [Big Rock Brewery Income Trust (BR-UN.TO)], a trucking trust [TransForce Income Fund Trust (TIF-UN.TO)], and a "parts and service support of mobile equipment, power systems and industrial components" trust [Wajax Income Fund (WJX-UN.TO)].

Canada doesn't hold a monopoly over these trusts. There are several 'unusual' trusts that are traded in the United States, unusual being defined as non-REIT's and non-oil & gas trusts. Here are a few.

Mesabi Trust (MSB), founded in 1919, owns royalty rights in mineral properties in the United States. The Trust receives royalties based on the volume of shipments and the selling prices of iron ore pellets. Their properties are located in Louis County, Minnesota. The trust trades on the New York Stock Exchange and yields 5.2%.

Mills Music Trust (MMTRS.OB) receives payments from a deferred contingent obligation payable to Mills Music Inc. for its catalogue of over 25,000 songs of copyrighted music. Some of the more famous songs in the catalog include "Stardust", "When You're Smiling", "Sleigh Ride", "I'm Getting Sentimental Over You", "Who's Sorry Now", and "Little Drummer Boy". Other songs include those written by Bing Crosby and Duke Ellington. Paul McCartney was reported as one of the major shareholders in the past. The company has paid consecutive quarterly dividends since 1965 [over 40 years] and currently yields 4.2%. One online source has reported that the trust distributions are non-taxable until the payments exceed your cost basis, however I wouldn't rely on that info without contacting your accountant first.

Fording Canadian Coal Trust (FDG) This New York Stocks Exchange traded trust, based in Calgary, Canada, owns an interest in a partnership which produces and sells seaborne metallurgical coal that is used primarily for making coke in integrated steel mills. They have ownership interests in six open-pit coal mines. They also own wollastonite mining operations in New York and Mexico. Wollastonite is primarily used in the manufacture of automotive composites, adhesives, sealants, and many other products. The stock trades on the NYSE and pays quarterly and yields 15.1%.

Great Northern Iron Ore Properties (GNI) founded in 1906, receives income from its iron ore mineral properties in Minnesota. It trades on the NYSE and yields 11.1%.

CSS Income Trust (CCRUF.PK) provides energy and environmental waste management services. They provide waste processing, engineered landfill disposal services, terminaling and storage, completions, workovers, and abandonments. Yields 5.7%.

Macquarie Infrastructure Company Trust (MIC) owns and operates a group of infrastructure businesses, including an airport services business, an airport parking business, a district energy business, a gas production and distribution business, and a bulk liquid storage terminal business. Trades on the NYSE and yields 6.1%.

Author owns MMTRS.


Anonymous said...

Very interesting list.

I'm just starting to do research on stocks and haven't really looked at high dividend stocks yet.

I checked out Advantage Energy Income Fund as well as I know how (not saying much) and have some questions.

It appears the stock intends to cover an annual dividend of 14% of the stock price.

As the stock has gone down (from 20 to 10) theyv'e lowered the dividend, but it still comes out to around 14%.

First question...do you have any opionions on why the stock has lost 1/2 its value in the last year.

But, had I been unfortunate enough to buy it at 20, I would still be getting a 7% return...which is a very rosy situation with a stock that's lost so much value.

Taking that forward, if it lost 1/2 its value again, and they dropped the dividend but still maintained a 14% of stock value approach, without knowing more about the stock buying at 10 a share looks pretty good to me.

Of course, I don't know if or how they can continue to provide that dividend %.

I see that you own 2 of these type stocks...can you tell me where I can get more info about high dividend investing?

Really appreciate the list you put together!

Anonymous said...

Fording Inc (FDG) also has lost 1/2 value in 2006.

Is this due to the Canadian tax law changes?

The MSN site stock rates it at a 10, while the single Zack analyst rates it a strong sell.

High dividend, Canadian pension fund ownership, but everyone is selling.

I'm not yet at any point of knowledge to comment intelligently on this, but none of this adds up.

As an IRA investor with no tax implications, should someone in my position (seeking income and possible asset appreciation) take the time to research these investments?

Aplogies for my current lack of knowledge...I'll get there on being able to read financial data, right now I'm more of a big picture person that is trying to make sense of things (and not investing any real assets until I get to that point).