In 2006, we found the perfect income investment.
Westshore Terminals sits at the end of a long spit in the waters just south of Vancouver. Trains originating from the coal mines of Canada dump their cargo onto company property. Westshore then sorts the coal and loads it onto ships bound for the world's steel mills. That's it.
When readers of my 12% Letter took their position in October 2006, Westshore sported an 11% dividend. Once the world caught on to the story, investors "chased the yield," making Westshore behave like a growth stock. That pick returned 80% in the first 18 months.
Today I'm going to show you why Westshore was the perfect income play... and how you can spot the market's best income investments. Let's get started...
To qualify as a perfect income play, a company must 1) run a simple business, 2) be unable to expand its operation, 3) enjoy a huge "moat," and 4) pay very little (if any) taxes. Here's how Westshore measured up:
First, Westshore's business couldn't be simpler. The railroad brings the coal to Westshore's Vancouver terminal. Westshore removes the coal from railroad hoppers, piles it up using a system of conveyor belts, and then reloads this coal onto ships. Westshore never owns the coal. It simply earns commissions from the coalmine it serves.
Simplicity is important because it's easy to identify the risks in a simple business. All businesses carry risk, but if you can identify them, you can make a more accurate assessment of a company's value.
Would you rather make a bid on a vast corporation with myriad operations and opaque accounting – say, Citigroup – or a coal terminal like Westshore? I always give more value to dividends from simple businesses than from complicated businesses.
Westshore Terminals sits at the end of a long spit in the waters just south of Vancouver. Trains originating from the coal mines of Canada dump their cargo onto company property. Westshore then sorts the coal and loads it onto ships bound for the world's steel mills. That's it.
When readers of my 12% Letter took their position in October 2006, Westshore sported an 11% dividend. Once the world caught on to the story, investors "chased the yield," making Westshore behave like a growth stock. That pick returned 80% in the first 18 months.
Today I'm going to show you why Westshore was the perfect income play... and how you can spot the market's best income investments. Let's get started...
To qualify as a perfect income play, a company must 1) run a simple business, 2) be unable to expand its operation, 3) enjoy a huge "moat," and 4) pay very little (if any) taxes. Here's how Westshore measured up:
First, Westshore's business couldn't be simpler. The railroad brings the coal to Westshore's Vancouver terminal. Westshore removes the coal from railroad hoppers, piles it up using a system of conveyor belts, and then reloads this coal onto ships. Westshore never owns the coal. It simply earns commissions from the coalmine it serves.
Simplicity is important because it's easy to identify the risks in a simple business. All businesses carry risk, but if you can identify them, you can make a more accurate assessment of a company's value.
Would you rather make a bid on a vast corporation with myriad operations and opaque accounting – say, Citigroup – or a coal terminal like Westshore? I always give more value to dividends from simple businesses than from complicated businesses.
By Tom Dyson
0 comments:
Posting Komentar