One of the fun things that I enjoy during moments that can cause investors to fret is to seek out some different investment opportunities that might be very interesting additions to any type of portfolio, especially income producing ones.
Recently I heard mention of a Unit Trust Fund called Dominion Resources Black Warrior Trust (NYSE:DOM).
I am certain many of you are familiar with this investment type, but to be perfectly honest I never explored them prior to now. With that in mind, there are probably many of you who might not be familiar with this investment either, so I felt it would be a good opportunity to share what I have learned. We can also open a dialogue for those even more familiar with these investments (particularly DOM) and educate many more folks just by reading this article.
Here is the company web site which has all of the frequently asked questions that have been answered to get you started, here.
DOM: A REIT That is Not a REIT
It sounds odd, but it is basically a fact. Since a Unit Trust Fund has special tax status under section 29 of the IRS tax code, they pay no Federal Income Tax on up to 65% of its “royalties," or income for lack of a better word.
Here is another link that goes into a clear and concise definition of the tax status - information here.
The balance is paid out in distributions to “unit” holders in the form of dividends, so it pays just like a dividend paying stock, however it is paid as cash and not re-invested just like a preferred stock dividend. In this particular case, Dominion Resources, Inc (NYSE:D) is the largest “unit” owner, and then there are the rest of us. In my opinion, this is a very lucrative and favorable tax status for Dominion Resources since it basically is a tax shelter for them.
It trades like a common stock and DOM is listed on the NYSE. Its average daily volume is only around 25,000 shares and does not have options available. Once again, much like most preferred stock.
Basic Fundamentals of DOM
1) Price: $9.29/share, dividend yield: 9.35% ($.23/share) paid quarterly, Market Edge Research gave it a BUY rating on 11/18/2011. Market Edge Research has a 72% accuracy rating per “Starmine.”
2) It hit its 52 week high of $18.00/share back on 2/11/2011 and has dropped since that time.
3) DOMs long and short term debts are roughly the same as other companies in its market and they are quite financially sound with a debt capital currently at ZERO.
4) They have an ROA (Return on Assets) of 48% with the industry average being only 9%. They obviously know how to make a profit on what they have.
All Is Not Wonderful
1) DOM needs increasing top line growth to grow and thrive.
2) Its very weak sales and earnings are the keys to its poor PPS performance and why it has dropped nearly 50% during 2011.
3) It has a poor BV and cash flow, but recent earnings were decent and its EPS is strong.
Dominion Black Warrior Trust's Business
Here is what Yahoo Finance has on its site as to DOMs business summary:
“Dominion Resources Black Warrior Trust operates as a grantor trust in the United States. The company acquires and holds overriding royalty interests burdening proved natural gas properties located in the Pottsville coal formation of the Black Warrior Basin, Tuscaloosa county, Alabama, which are owned by Walter Black Warrior Basin LLC. As of December 31, 2010, its underlying properties comprise 34,212 gross acres of land that contained 532 gas producing wells. The company was founded in 1994 and is based in Dallas, Texas.”
Obviously they are in a very unique business. And in my opinion, because of government regulations and an emphasis on alternative energy sources, Dominion has taken a major hit in all areas of operations.
Given the fact that those regulations are now loosening up, and the recent issues with alternative energy companies themselves, DOM could be in a position to re-grow its business, increase sales, increase profits and cash flow, and in turn, show capital appreciation.
While I have not determined as to whether or not I personally would add it to my core portfolio, I believe that DOM has potential.