Original Recommendation

Mesabi Trust

Mesabi Trust (MSB)

our opinion

buy

current price

$28.38

target price

$32.00

market cap

$372M

div yield

10.5%

  • MSB will collect royalty payments for 21 years after the death of the last remaining Trustee
  • The U.S. is in desperate need of upgrading its infrastructure. It'll cost trillions to bring everything up to date. This will keep a steady demand for the need of U.S. steel
  • Trump's trade wars have allowed U.S. companies to thrive. Mesabi's mine is in the heart of the U.S. mainland. Giving it a logistical leg up in providing steel for American companies that need it

trade details

Dividend yields are hard to come by these days.

Yields have been pushed down around the world after every central bank injected their own stimulus.

10 Year U.S. Trasuries yield just 2.6%. The S&P 500 yields just 2%. And even junk bonds (referencing the junk bond ETF – HYG) yield just 5.7%.

Investors are so hungry for yield (or safety), there’s over $9 trillion in negative yielding debt around the world. That’s not a typo.

The hunger for yield is what’s pushed asset prices across the board to record levels.

It’s hard to find assets that provide a decent yield. But that doesn’t mean they’re not there.

Today, we’re investing in Mesabi Trust (NYSE: MSB) – an iron ore company which pays a monster 10% dividend yield.

(Disclaimer: I – Peter – have owned MSB for years. I bought it back in 2015 when it was trading around $5 per share. I haven’t sold a single share. And don’t plan on selling for a long time.)

Mesabi Trust was formed in 1961. The creators of the Trust named 25 people as the Trustees. It’s sole purpose was to collect royalty payments from the Northshore Mine in Minnesota… and then pay out the distributions to the Trustees.

It doesn’t matter who operates the mine. The operator must always pay MSB a royalty for every pellet of iron ore produced.

The more iron ore produced, the higher the royalty payment to MSB.

It has no employees. No overhead. No operating costs. Nothing.

The only expenses are paying the board to make sure Mesabi gets paid properly. And then decide how much to pay out the unitholders – us.

But let’s take a step back.

The United States Needs Steel.

The American Society of Civil Engineers (ASCE) produces a report card every four years to assess the state of U.S.’s infrastructure.

Their 2017 report card stated the U.S. needs to spend $4.6 trillion to upgrade its infrastructure. From bridges to dams to schools to transit.

Trump pledged to spend more than $1.5 trillion to upgrade our crumbling infrastructure. It’s one of the only issues that’s gotten bipartisan support.

That’s where Mesabi comes in.

It’s mine is located in the heart of America – in Minnesota.

Companies around the country are ordering iron ore pellets from Cleveland-Cliffs Inc (NYSE: CLF) – the operator of the mine.

You see, American companies will continue to order iron ore from CLF for a couple reasons.

First, it’s logistically easier to get it shipped across the country versus cheap steel from China or Brazil.

Second, Trump directly called out China for dumping cheap steel in America. It was the catalyst of the trade war. And now there’s 25% tariffs on Chinese steel.

American companies are now taking politics into consideration. Be commended by Trump for being patriotic – in buying American steel. Or be considered a bad actor by continuing to import Chinese steel.

Vale’s Dam Collapse Supports Iron Ore Prices.

A big catalyst that will support massive royalty payments from Cleveland-Cliffs to Mesabi was the Brazilian mining dam collapse in January.

Hundreds of people were killed. And hundreds more are still missing. It was one of the worst mining disasters in recent past.

Vale – the Brazilian company which owns the mine next to the dam – was held responsible. Vale subsequently said it would cut production by 10% – about 40 million tons and 11 million tons of pellets.

Iron ore prices spiked as a result.

The higher the iron ore price, the higher the royalty Mesabi collects from Cleveland Cliffs.

The Best Part Of This Royalty Company.

The way the Trust is written is what makes this investment one you must hold in your portfolio. The Trust states unitholders will get paid out for 21 years after the death of the last remaining Trustee. The 25 youngest Trustee was born in 1961 – making him 58 years old.

Assuming he lives to 76 – the average life expectancy of men in the U.S. – we will be collecting dividends for at least another 39 years.

Buy MSB and sock it away for years. This will be one of the best investments you’ll make.

Buy MSB up to $30. Put no more than 3-4% of your portfolio into the stock.

(A higher U.S. dollar or a global recession will send iron ore prices down… and therefore the royalties of MSB. This will send the price of MSB down with it. Use bigger pullbacks in MSB as buying opportunities. Also, we recommend setting MSB up on a dividend reinvestment plan to accelerate your ownership of MSB).