A Massive Dividend You'd Be Crazy to Buy

What if I told you I've found you a dividend-paying stock with a seriously eye-catching 10.5% yield? What if I said that the same stock was trading at less than 14 times trailing earnings and is in the hot metals sector? Sound interesting?

Sure it does. That is, until you find out that the company will cease to exist in a little over four years, and there's almost no chance that the dividends between now and then will justify the stock's current price.

The big dividend you don't want
The stock that I'm talking about is Great Northern Iron Ore Properties (NYSE: GNI  ) , a property trust that owns iron-producing properties in Minnesota.

A family member recently sent me a research report on the stock and asked for my opinion on it. After perusing the report, I did what I always do when researching a stock -- I pulled up its most recent annual report. There, I was immediately met with a very simple, very important fact that the research report had completely overlooked: The fact that on April 6, 2015, the properties of the company will be transferred to ConocoPhillips (NYSE: COP  ) , the company will be dissolved, and the stock shares retired.

How a research report could possibly overlook a fact like that boggles my mind, but the bottom line is that investors only have a few years to recoup their investment before the company disappears.

Over the past few years, distributions from Great Northern have bounced around a bit, but have averaged $2.62 per quarter, and peaked at $4.50 in the fourth quarter of 2008. The fourth quarter 2010 distribution was $3.75.

There are 17 quarters remaining that Great Northern will pay a regular distribution, and at the time of dissolution, it will also pay out a final distribution. Even if we assume that every distribution over those 17 quarters is at the peak level of $4.50, that sum, along with the company's current rough estimate of the final distribution ($8.53 per share), comes out to $85 -- way below the current share price of $136. And that rough calculation doesn't even discount the future distributions (a $4.50 distribution in 2014 isn't worth $4.50 today).

So why are investors paying so much? Perhaps they are extremely bullish on iron ore prices and think that future distributions will be much higher than historical distributions. Or investors may simply not be doing proper diligence on their investments and fell in love with Great Northern's yield without ever realizing that the company is counting down the days until it disappears.

Getting to know your dividends
As dividends have increasingly come back into vogue, investors have been taken with stocks that are pumping out huge payouts. Many of the names at the very top of the yield list all come from one small neighborhood -- the mortgage-backed security REITs. That list includes Annaly Capital (NYSE: NLY  ) with a 14.3% yield, Chimera Investment (NYSE: CIM  ) with a 16.5% yield, and American Capital Agency (Nasdaq: AGNC  ) with a whopping 19.5% payout.

For obvious reasons, those double-digit yields have pulled in investors like a space-age tractor beam. But investors had better understand the businesses behind these companies if they plan to invest.

The Cliff's Notes version is that they finance themselves through short-term borrowings, purchase mortgage notes, and then pocket the spread. That spread is nice and juicy when rates are ridiculously low -- as they are now -- but compress when rates start to rise. Not only can this mean smaller dividends for shareholders, but it may also mean capital losses as stock prices drop in response to falling payouts.

Annaly, which has more of a history than the others, provides an illustration on how this could play out when rates start to rise again. When the economy got into trouble after the Internet bubble popped, the Federal Reserve cut rates, which helped Annaly's bottom line spike. But once the economy found its sea legs again and rates were pushed back up, Annaly's dividend and stock price fell. Between 2002 and 2006 the dividend payout dropped from $2.67 to $0.57 while the stock price retreated from a high of more than $21 in mid-2002 to less than $11 at the end of 2005.

Will history repeat itself during this cycle? That remains to be seen, but investors better understand what risks they're facing as they chase those huge yields.

My kind of dividends
Since the core of my personal portfolio is made up of dividend payers, I look for companies that I can count on to deliver year-in and year-out. Sure, no business is a 100% certainty, but there are plenty that I believe will provide attractive returns and still allow me to sleep soundly.

AT&T (NYSE: T  ) , for example, may not be on anyone's list of scorching growth stocks, but it has a solid, dependable business that consistently produces more than enough cash to pay its dividend. The stock currently yields almost 6%, and I think it's undervalued to boot.

Wal-Mart (NYSE: WMT  ) is another favorite of mine. In this case, you're not getting nearly the yield of AT&T -- the current payout is only 2.2%. However, with this pick, you not only once again get a solid, dependable business, but one that has much more opportunity for growth. And speaking of growth, Wal-Mart has nearly doubled its dividend since 2006, and its payout ratio of just 29% gives it plenty of room to boost the payout further.

Do you have to forgo mouth-watering double-digit yields in favor of a punier payout? Of course not. But while truly wacky situations like Great Northern are few and far between, it's a great warning as to why investors absolutely must look beyond the dividend yield and figure out what's going on under the hood.

Looking for more dividend ideas? Click here to read the free report that my fellow Fools put together detailing their 13 favorite dividend picks

Wal-Mart Stores is a Motley Fool Inside Value recommendation. Wal-Mart Stores is a Motley Fool Global Gains pick. The Fool owns shares of Annaly Capital Management, and Wal-Mart Stores. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Matt Koppenheffer owns shares of AT&T and Wal-Mart, but does not own shares of any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or on his RSS feed. The Fool's disclosure policy assures you no Wookiees were harmed in the making of this article.


Read/Post Comments (36) | Recommend This Article (81)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 05, 2011, at 5:20 PM, TMFBreakerRob wrote:

    Good article, Matt!

    There are pits into which the unwary fall. Oddly enough, a lot of folks will step into them even after being warned....but hopefully you'll have saved some.

  • Report this Comment On January 05, 2011, at 5:24 PM, TMFHousel wrote:

    Nice work Matt. Three cheers for the efficient market theory!

  • Report this Comment On January 05, 2011, at 5:55 PM, DrRonPaul4Prez wrote:

    I like your perspective on dividends. I would much rather take a stock that pays a 2% dividend and grows it every year than one that pays a much higher dividend and has a death sentence. The more I read and research, the clearer it becomes that long term investing really is the way to go.

  • Report this Comment On January 05, 2011, at 6:32 PM, timlash wrote:

    Good perspective.

    Do you have an opinion on NLYs interest hedging strategy? Can they possibly construct a robust enough hedge that will protect their earning capacity, or will any hedge be merely a cushion to the inevitable squeeze when rates rise?

  • Report this Comment On January 05, 2011, at 6:50 PM, TMFKopp wrote:

    @TMFBreakerRob and TMFHousel

    Thanks guys!

    Matt

  • Report this Comment On January 05, 2011, at 6:56 PM, TMFKopp wrote:

    @timlash

    I've never gotten on board with NLY, but as far as I can tell that leaves me in the minority. There are a lot of folks that I really respect that have been bullish on NLY, and the primary reason is often the company's management team.

    So to your question about hedging, if you're on the "NLY's team is top notch" train, then it very well could be that they have a great hedge strategy in place.

    For me though, I generally prefer companies that don't have to fully rely on the prescience of management to be successful.

    Matt

  • Report this Comment On January 05, 2011, at 7:26 PM, Borbality wrote:

    just bought some WMT, but was considering T as well. Feeling good about WMT's growth prospects, low payout ratio and dividend growth!

  • Report this Comment On January 05, 2011, at 7:37 PM, staad wrote:

    So far it has been great to own NLY, CIM and other dividend paying stocks, at this point it is better to pocket 12% or more than to bank on the more solid companies that pays much less dividends.. Any one owns such high paying stocks just watch the interest rates when they do strart going up you can always sell before they tank as per this article.

    It will take a low paying dividend stock 6-7 more years to match one year of NLY or CIM assuming that they pay 2.2% such as WMT..

    Judging the way the economy is heading I don't see a fast recovery and the housing market is really in Limbo so the interest rates will still be low and if they go up I still be happy getting 8% from such stocks...

    Good luck for all.

  • Report this Comment On January 05, 2011, at 8:36 PM, TMFKopp wrote:

    @staad

    "Any one owns such high paying stocks just watch the interest rates when they do strart going up you can always sell before they tank as per this article."

    It's this attitude that worries me a bit about those investing in NLY and the others. Everyone has this same thought -- "Oh, well when interest rates start rising, I'll just sell."

    That's all well and good, but what do you think will happen when everyone is rushing to sell all at once? The concern is that capital losses could eat up some of the income from those fat dividends.

    My crystal ball is in the shop at the moment so I don't know for sure that that will happen, but it's hardly an outlandish thought.

    This is a cyclical stock -- peaks with low rates, troughs with high rates -- and right now there's no question that it's at a cyclical peak. I think a much more interesting play would be to wait for higher rates, after everyone has cleared out and it's no longer making headlines, and get in when it's at the bottom of its cycle.

    And if I'm wrong? I'm OK with that -- there are no called strikes in investing and I'd rather not swing when I don't like the pitch.

    Matt

  • Report this Comment On January 05, 2011, at 9:14 PM, exeter17 wrote:

    And whats the value Conoco puts for the final buyout....

  • Report this Comment On January 05, 2011, at 9:22 PM, staad wrote:

    There is no pitch just basic research if the stock goes down I am buying more unless the management lose there edge. For long term it is called dollar cost averaging....and the dividends being reinvested buying more shares does not matter I am not timing the market basic math $10,000.00 invested at this return rate interst will be $1400.00 minus taxes still great can buy more shares. All stocks go through yearly highs you can wait and buy low when everyone sells or you can be in it and cost average either way it is still a great money making stock.

    http://moneycentral.msn.com/investor/charts/chartdl.aspx?PT=...

    This a chart from msn money, Dividends for the last 10 years paid by nly quarterly.

    Do your homework and good luck with your strategy I only invest a small portion in this stock something happen I will not lose all my money diversification.

  • Report this Comment On January 05, 2011, at 11:01 PM, umavarikuti wrote:

    This is crazy and scary! Is this legal?

    Unless you read line by line, its easy to miss the fine print in the annual report.

    Thanks Matt for the alert and teaching us about the need to read annual reports carefully.

  • Report this Comment On January 05, 2011, at 11:07 PM, TMFKopp wrote:

    @exeter17

    From Conoco's perspective the transfer of these assets is little more than a blip. But to be clear, it's not a buyout, it's simply a transfer of assets as per the original trust documents. As far as I've seen, the final distribution comes from what's left on GNI's balance sheet, not a payment from COP.

    Matt

  • Report this Comment On January 05, 2011, at 11:10 PM, TMFKopp wrote:

    @umavarikuti

    Completely legal.

    "Unless you read line by line, its easy to miss the fine print in the annual report."

    Actually, the good news here is that in a lot of cases much of the most important stuff is very easy to spot. In the case of GNI, you can find the very important information about the trust's termination right at the very beginning of the annual report. The second paragraph of the Business Section (the first section) of the 10-K reads:

    "The terms of the Great Northern Iron Ore Properties Trust Agreement, created December 7, 1906, state that the Trust shall continue for twenty years after the death of the last survivor of eighteen persons named in the Trust Agreement. The last survivor of these eighteen persons died on April 6, 1995. Accordingly, the Trust terminates twenty years from April 6, 1995, that being April 6, 2015."

    For the curious, here's a link: http://www.sec.gov/Archives/edgar/data/43410/000089710110000...

    Matt

  • Report this Comment On January 06, 2011, at 1:07 AM, jeasusfreakus wrote:

    I'm confused. So Matt is saying it is foolish to invest in a company like NLY because your $21 investment yielding 13% could reduce down to a ~2.5% yield over a few years but then go up again to over 12% (on the original $21 investment) within a few years. And that sucks compared to Walmart paying a 2.2% dividend? Oh... but Walmart is a "solid" company. Yet since 2000, Walmart has lost ~21% of its value (from $69 to $54) while NLY has gained 225% (from ~8 to ~18 and not counting compounding dividends 5x WMT!).

    I suppose if you aren't in the market for the long term and are looking to make some quick cash, then NLY is not for you. I don't believe for a second those are the NLY investors. They are in it for the long term as are the institutions (WMT@33.60% verses NLY@55.50% owned by institutions).

  • Report this Comment On January 06, 2011, at 2:16 AM, TMFKopp wrote:

    @jeasusfreakus

    First off, I think I made it pretty clear in the article and the comments that I'm not calling an investment in NLY or the others foolish. Rather, I'm urging that investors that do want to take the plunge be sure to understand the company that's behind the stock.

    "because your $21 investment yielding 13% could reduce down to a ~2.5% yield over a few years but then go up again to over 12% (on the original $21 investment) within a few years."

    Part of the issue is that the stock is unlikely to ever yield 2.5% -- as the dividend payout falls, so will the stock price as investors turn tail and run, so not only will you be getting a lower dividend payout, but you'll be sitting on a hefty capital loss.

    As to whether the dividend (and the stock) recover to where they are now is another question. Though rates have fallen to ridiculously low levels in the past few years, there has been a much longer-term trend of falling interest rates that dates back to the 80s. It's very likely that rates rise and never (or at least not in the anywhere foreseeable future) return to where they are now.

    But the one thing that I think is a guarantee is that rates will not stay where they are now.

    In short, I wouldn't bank on a return to this land of milk and honey for NLY.

    "Oh... but Walmart is a "solid" company. Yet since 2000, Walmart has lost ~21% of its value (from $69 to $54) while NLY has gained 225% "

    Very dangerous comment. The quality of a company and the performance of its stock are two very separate things. In 2000, Wal-Mart was a quality company with a ludicrous stock valuation. Today it's a quality company with an attractive valuation.

    As to the dividend, in five year's time, I fully expect that Wal-Mart's will be much higher, while I think there's more of a likelihood that NLY's will be slashed in half than that it will be near today's level.

    " I don't believe for a second those are the NLY investors."

    Think again.... Just above staad was talking about being ready to sell as soon as interest rates start climbing. Part of my concern with the mortgage REITs is that I don't think most investors really know what they're getting into -- they're just jumping at a huge yield. As such, when that dividend starts dropping, they're going to say "peace out!"

    And as for institutional owners, I think you may be badly mistaken. Have you looked at the turnover of the average mutual fund lately? NLY will be lucky if it's held until the end of the year by most mutual funds that own it, let alone five or ten years. Institutional owners are often some of the worst, quickest-to-flee shareholders a stock can have.

    That's not to say that it's all bleak for NLY. If you take a long-term view of the stock as you're suggesting, you may be able to ride out the cycles and do fine -- particularly if you buy some more during the down cycle. However, what I don't understand is why not just wait for the down cycle and buy at a lower price with the up cycle still out ahead? Why buy now when there is no doubt at all that the company's results are peaking?

    Matt

  • Report this Comment On January 06, 2011, at 3:15 AM, Fundament wrote:

    Wonderful article. I am a little confused. High yield stocks should deliver continuous dividends. This is a point that could not be true for companies like COP, GNI or your MBS companies. Utilities as well as telecom service stocks like T have more sustainable dividends. But T is not cheap in relation to competitors abroad. Remember, the best stock I know from the industry is the Spanish Telefonica (TEF). TEF has a yield of 7.7 percent. In addition to the dividend yield, you can expect currency gains if the dollar decreases against Emerging Market currencies or the EUR. Here are some more foreign high yields:

    http://long-term-investments.blogspot.com/2010/12/25-best-di...

    The average dividend-yield of my list amounts to 6.25 percent while the average P/E ratio is 12.95.

  • Report this Comment On January 06, 2011, at 6:50 AM, busterbuddy wrote:

    Great article. Yea Great Northern is something that catches you eyes when you do a stock screen. Its a family business and the owner had it in his will that the stock and company was sold x number of years after his death. I'm not sure alot of people know this.

    But on the other side of this equation of dividends is Exxon. This is a dog dividend paying stock. And it sits in every Dividend paying mutual fund as top holdings.

    I recommend looking at stocks or MLBs paying around 6-8 %. But I do own NLY, just can't pass that one up.

    But a dividend strategy should be spread amount several assets types. Energy MLPs, Bank preferred stocks, companies like T, And real estate investment trust like, O. And you should look at international paying stocks or REITs. One I've decided to utilize is Vanguards Non US REIT ETF. To me it is a way to get return from international markets based on income.

  • Report this Comment On January 06, 2011, at 10:13 AM, TMFAleph1 wrote:

    With a name like Chimera, you'd think people would be more wary before investing in this REIT. That's very well what that dividend could turn out to be!

  • Report this Comment On January 06, 2011, at 11:14 AM, staad wrote:

    Matt,

    I might have missed my point in trying to discribe my investment strategy... When replied second time I mentioned I will be dollar averaging on NLY and any good dividend paying stocks, I will only sell it if the management starts bailing out and the stock started to tank etc.. we all lost money in the market at some point in the past, I still watch and learn started investing in high yield dividend stocks by reading articles posted on Fool.com which in my opinion is a great help to all of us. Before I invested in strong companies and also bad ones. Learned one thing the way the market is now a head ache to even the best mutual fund managers.

    If your investment goals are are for the very long term then NLY, or other high yields stock are the best for you unless you are 100% sure that they will tank and 100% that other great companies will rise, WMT and others where at one point low stocks and management where great enough to grow these companies into giants. But how many more WMT, KMT, SEars Target can a city support ..... so at this point there growth is limited and might start paying more dividend in the future.

    I am in NLY for long term compounding , reinvesting and dollar cost averaging....

    The other great companies I am sure my IRA mutual funds are investing in those too.

    But the rest of my investment I am glad I can research here and learn from your article and other great ones...

  • Report this Comment On January 06, 2011, at 11:56 AM, tomd728 wrote:

    The beauty of NLY is that you know exactly what

    to be aware of in a rising rate environment.

    Exceptionally managed and just this week raised another 1bb to put to work.

    You know where their free cash is going........

    Tom

  • Report this Comment On January 06, 2011, at 2:41 PM, TMFKopp wrote:

    @staad

    Fair points, and I wouldn't be totally shocked if those that are able to stay with NLY over the long-term do well. But (not to sound like a broken record) I'm still wary that buying right now is buying at the peak of the cycle.

    As for Wal-Mart, note that there is a significant amount of growth that the company can still target overseas. Global Gains advisor Tim Hanson picked WMT as his top *international* stock of 2011:

    http://www.fool.com/investing/international/2010/12/20/our-t...

    Thanks for adding your thoughts to the mix, that's what makes the Fool community so great!

    Matt

  • Report this Comment On January 06, 2011, at 5:10 PM, kilgoretrout2 wrote:

    I don't own or know much about NLY, so I'm not going to defend it. But I found the logic in this article to be so questionable that I think it warrants a response.

    The prime rate hit a low of 4 in June of 2003 and NLY traded at $20.80. The prime rate steadily increased for two years--all the way to 6.25--and on June 13, 2005 NLY traded for...$20!

    The drop you're quoting, from around $20 to $11, actually occurred over a few short months in 2005. Have no idea why it lost close to 50% of its value during that period, but it doesn't look like interest rates were the culprit.

    Don't get me wrong, I'm not arguing that interest rates don't have a massive impact on the value of these instruments, but you may be overstating the risk by selecting convenient data points.

    More importantly, the tenor of the article seems to suggest that playing economic cycles is a bad idea. That's crazy. If you can get 10% in treasuries when the economy is booming and rates are high, take your 10%. if you can get 17% on REITS when the economy tanks and interest rates drop, take that too. But...T and WMT?

  • Report this Comment On January 06, 2011, at 6:23 PM, MichaelRo wrote:

    Funny last week fool called it a good buy. Now its a week later and calling it a not so good thing. I dont buy or sell on a whim. Even on a weeks notice more of a buy and hold. So tell me which is right

  • Report this Comment On January 06, 2011, at 6:43 PM, MichaelRo wrote:

    http://www.fool.com/investing/general/2010/12/30/high-priced...

    Read this from 12/30/2010 gives gni a good green light then today a red light

  • Report this Comment On January 06, 2011, at 7:40 PM, TMFKopp wrote:

    @kilgoretrout2

    You're better off looking at the business results for NLY during that period to figure out why the stock ended up dropping. 9/2004 the company delivered $67m in net income, by 6/2005 it had fallen to $47m, then in 12/2005 the company reported a $137m loss, followed by another loss the next quarter. The quarterly dividend was $0.50 in 9/2004 and had dropped to $0.13 by 9/2005.

    It wasn't until 3/2007 that the net income again matched the level of 9/2004 and it wasn't until 6/2008 that the dividend was once again at the level of 9/2004.

    Why did results decline so rapidly? The change in the interest rate environment. It all came to a head all at once in the December quarter of 2005 because the company began selling assets that it acquired during the lower-rate environment. Because rates had risen, those investments no longer provided attractive returns and could only be sold at a loss. From NLY's 2005 10-K:

    "During the fourth quarter of 2005, the Company sold assets and began purchasing assets in the current rate environment. With the federal funds interest rate continuing to rise in the fourth quarter of the year, the Company sold lower yielding assets and began replacing them with higher yielding assets. Certain assets that were purchased in the much lower interest rate environment of 2003 and 2004 are unlikely to recover to their amortized cost basis and were not providing attractive returns on a cash flow basis."

    "the tenor of the article seems to suggest that playing economic cycles is a bad idea."

    Actually, while economic cycles are tough to predict, I'm not completely against it. My real question is why investors are choosing to get really excited about NLY when it's at the very top of its cycle. If you're going to play economic cycles, it's typically better to get in when the cycle is at the bottom and then reap your rewards.

    Matt

  • Report this Comment On January 06, 2011, at 7:44 PM, TMFKopp wrote:

    @MichaelRo

    First, I'd note that I was not the author of that article. At the Fool we like to get a range of opinions and so writers will often have differing views on the same stock.

    More importantly though, I would strongly encourage you to actually read the article that you've linked to.

    Rich was very clear in that article that he *does not* think that GNI would make a good investment. From the article:

    "Investors might be tempted to pursue Great Northern Iron Ore Properties' dividend, which currently yields more than 5% annually. But a big risk accompanies that payout; the trust will be dissolved in less than five year's time."

    ...

    "CAPS member pchop123 admits that Great Northern's yield is nice, but with the deathwatch set in motion, there's little to recommend it as an investment."

    Matt

  • Report this Comment On January 06, 2011, at 7:46 PM, TMFKopp wrote:

    I think it's also very cool to point out that while many investors may have missed the elephant in the room when it comes to GNI, the CAPS community most certainly did not. GNI currently has a one-star rating on CAPS -- the worst rating available.

    http://caps.fool.com/Ticker/GNI.aspx

    Matt

  • Report this Comment On January 07, 2011, at 1:51 PM, Mktintelanalyst wrote:

    According to their website:

    "payable to the certificate holders of record at the time of the termination of the Trust. Upon termination, the Trust is obligated to distribute ratably to these certificate holders the net monies (essentially, total assets less liabilities and properties) remaining in the hands of the Trustees (after paying and providing for all expenses and obligations of the Trust), plus the balance in the Principal Charges account (primarily representing the costs of surface lands acquired over the years). After payment of this final distribution, the certificates of beneficial interest (shares) would be cancelled and have no further value. All other Trust property (most notably the Trust's mineral properties and the active leases) must be conveyed and transferred to the reversioner (currently Glacier Park Company, a wholly owned subsidiary of ConocoPhillips) under the terms of the Trust Agreement. "

    The final distribution may have some significant value. The trick is to figure out what that would be worth.

    Sorry the Fools didn't mention this to assume the only value is the dividend flow. Their pointing a finger at a "faulty" analysis is questionable.

  • Report this Comment On January 07, 2011, at 2:51 PM, TMFKopp wrote:

    @Mktintelanalyst

    You may want to do a careful read of the article above. The final distribution that you're referring to was noted in the article as, well, the final distribution:

    " along with the company's current rough estimate of the final distribution ($8.53 per share),"

    Here are the details of that rough estimate from the company's most recent 10-Q:

    "To offer a hypothetical example, without factoring in any expenses and obligations of the Trust upon its termination, and using the financial statement values as of December 31, 2009, the net monies were approximately $7,867,000 and the Principal Charges account balance was approximately $4,931,000, resulting in a final distribution payable of approximately $12,798,000, or about $8.53 per share."

    (http://www.sec.gov/Archives/edgar/data/43410/000089710110002...

    Of course this could change over time, but probably not by a whole lot as GNI hasn't really grown its balance sheet over the years. Additionally, the $8.53 estimate -- as noted in the filing -- doesn't factor in final costs. It also doesn't assume any discounting factor -- as with the distributions in coming years, $8.53 a few years from now is not worth $8.53 to investors today. So if anything, it may be a high estimate of what the final distribution will be.

    Thanks for reading!

    Matt

  • Report this Comment On January 07, 2011, at 3:28 PM, Beagle2Mars wrote:

    Iron ore + what makes steel? China buys 37% of Australia's coal production which is currently underwater. That's why investors are there but are there better iron-ore companies in the marketplace that will accumulate faster.

    Also when you say 'dissolve', do the current investors get nothing or are they paid off in the new company's shares? And is that worth the investment?

  • Report this Comment On January 07, 2011, at 4:18 PM, TMFKopp wrote:

    @Beagle2Mars

    "Also when you say 'dissolve', do the current investors get nothing or are they paid off in the new company's shares? And is that worth the investment?"

    There will be no new company to speak of. GNI is a property trust and the trust is set to end in 2015. The property interests will be transferred to COP and after the final distribution is paid (per the above comment), GNI will be done, over, through, and kaput.

    Matt

  • Report this Comment On January 09, 2011, at 3:32 PM, ikkyu2 wrote:

    Good catch, Matt. Please keep ferreting these things out and explaining them. Everyone needs to hear them.

    I try to follow one of Peter Lynch's rules: if I had to take 5 years off from looking at or changing my portfolio, I'd feel confident to be holding any of the stocks in it for those 5 years. That doesn't mean that I have to hold my positions for 5 years; it just means that if, Rip van Winkle style, I took a 5 year nap, I'd wake up unworried about the good quality stocks in my portfolio.

    These REITs and similar that you're discussing here violate that rule in the worst way.

  • Report this Comment On January 10, 2011, at 11:23 AM, Tomohawk52 wrote:

    Prescient article considering the direction of the stock today.

  • Report this Comment On January 12, 2011, at 12:49 AM, MotleyFoolster wrote:

    Nice work taking Citron Research's work from a week earlier and claiming it as your own.

  • Report this Comment On January 12, 2011, at 1:51 AM, TMFKopp wrote:

    @MotleyFoolster

    Thanks for the kind comment.

    As noted in the article above, the stock was brought to my attention when a family member forwarded me a research report recommending the stock. The analysis is my own, and frankly wasn't anything brain-bending as the most important information is all available in the opening section of GNI's 10-K.

    Matt

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