Great Northern Iron Ore Properties (NYSE:GNI) was founded in 1906. It has undergone many changes in organization since then. It is now a trust which pays an 18.70% dividend per year. That sounds great at first glance. Unfortunately, the last surviving person named in the trust agreement died on April 6, 1995. By the trust agreement, the trust will terminate 20 years after that date on April 6, 2015 (about 3 years from now).
Some might say, "That's okay. I can still collect the great dividend. Plus I'll get whatever is left of the trust when it ends, which is considerable assets." This may seem logical, but unfortunately, it is very wrong. Per the trust agreement, the Trust's mineral properties and active leases will at the end of the Trust be transferred to the reversioner, who is currently the Glacier Park Company - a subsidiary of ConocoPhillips (NYSE:COP). This doesn't enrich a GNI shareholder in the least. It only enriches ConocoPhillips .
What does a shareholder get? A shareholder gets the 18.70% per annum dividends between now and the termination date, April 6, 2015. Plus, the shareholder gets any net monies left in the Trust plus the monies in the Principal Charges account after Trust termination expenses. As of Dec. 31, 2011, these monies amounted to $8.59 per share without subtracting the Trust termination expenses. In other words, those shares that were selling for $124.67 per share at the close on Wed. Feb. 29, 2012 are worth roughly three times the $23 a year dividend plus about $8 from the other monies. This comes to roughly $76 per share. If you had bought this stock Wednesday, you would be technically out about $50 immediately upon your investment.
Of course, the stock market doesn't work this way. The bulk of investors do not do their homework. Some only look at the incredibly strong charts such as the 100+ year chart below and the fantastic dividend. I have often had arguments over fundamentals with these trend following know-it-alls. This is another sad case where they have failed.
click to enlarge
The uptrend in the chart is clearly strong. It is obvious that most of the market is unaware of the status of the GNI trust. I pity those who would pay $124.67 for something that is worth approximately $76, and that is without figuring in the time value of money. If you can afford to pay out the dividends on this stock for the next three years, you can consider shorting it for what should be a sure profit. Few profits in the stock market are as sure as this. There is something to be said for that surety. The payout is much better than that of any US Treasuries or high quality Corporate bonds you can buy.
The only "gotcha" is that you will have to wait for three plus years to get the payout. After April 6, 2015, the shares will be worthless, except for the roughly $8 per share payout. If you short at $124.67, you will then get your $124.67 back in full. Of course you will have to have paid the dividend for three years. Plus you will have to pay the approximately $8 in remainder monies. If you own GNI currently, I would advise you to sell it immediately. Then you can put your money in something that may possibly enrich you. If you are thinking of shorting, you could try to wait for a time closer to the Trust termination data. However, waiting runs the risk of the stock price falling. You may wish to short immediately.
Good Luck Trading.