Mesabi Trust (MSB), Cliffs Natural Resources Inc (CLF), And Yield Tied To One Mine

Other Iron Ore Royalty Trusts

There are other royalty trusts that are ways to play iron ore or oil. Great Northern Iron Ore Properties (NYSE:GNI) is an iron ore royalty trust even more weighted to short term prices. Its profit margin is 81.5% and it has a dividend yield close to 20% compared to 11% for Mesabi Trust (NYSE:MSB). However, the trust expires in 2015. Many investors are sucked into this trust due to their thirst for yield. The discounted cash flows for this trust doesn’t add up to the price of the stock. The dividend payouts and yields will decline if iron ore prices continue to slide.

Conclusion

Earning from Cliffs Natural Resources Inc (NYSE:CLF) are expected to almost get cut in half in FY13 before returning to growth in FY14. Investors should expect income and dividends react in a similar way at Mesabi Trust. Until demand catches up with supply, pricing will likely remains soft for iron ore. All that said, for an income investor, Mesabi Trust (NYSE:MSB) could still perform well over the long-term as prices rebound. In the meantime, dividend yields should remain solid and provide income until that point.

The article Yield Tied To One Mine originally appeared on Fool.com and is written by Mike Thiessen.

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