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Whiting USA Trust I Whiting USA Message Board

  • abccoll123 abccoll123 Oct 6, 2012 7:05 PM Flag

    Always look at your 1099-B for dividend-paying stocks

    I warned of this thing going down WAY WAY BACK - June 12, 2011 to be exact. I told what the price should be - see where it is now. One just needs to look at the 1099-B tax statement from ones broker to figure out that a majority of these companies's SO-CALLED DIVIDENDs are ACTUALLY Return OF Capital/Principal ( NOT return ON capital ). Many Many such examples - always look at your 1099-B.

    CONGRESS or SEC should stop this practice of including return of capital while calculating/announcing DIVIDEND in financial web sites/media etc. Very very disappointed with SEC - not standing up for the small investor - as usual.

    WHZ - is that same game ? We will know when the 1099's come out in 2013.

    Sentiment: Strong Sell

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    • abc, one way to think about return of capital investments would be to imagine you have a bank account with $100 that has a variable rate of interest associated with it. What is that worth? Well, if you can buy that for less than its present value, discounted to the rate of return you want to make, that's probably an okay investment. So I don't agree that such investments should be made impossible. We have far too much regulation in this country, not too little.

      But where I really agree with you is in the issue of disclosure. I am all for a disclosure form for dividends and distributions that tells you very clearly what part of that came from a return of capital. Far too many mutual funds play an evil game with unsophisticated fund owners where they claim to have a high 6%+ dividend when in fact they have a 2% dividend and the rest is just a return of your investment. If you are going to let unsophisticated people make investments at all, then I think you can make the argument that at very least you owe them a *clear* and *obvious* and *repeated* disclosure.

    • Actually, no. It's better to ignore the 1099 altogether (since it is often wrong for trusts like this).
      The trust provides a very detailed tax booklet usually around late January which explains the tax handling in great detail. That is what you should look at, not the 1099.

      And, btw, there is nothing wrong with return of capital, so long as much more capital is returned than you invested. Pretty much all MLPs and trusts could be categorized as return of capital, however you can still make very significant profit with them. I have no problem with return of capital when it means my investment is returned to me yet I still own units paying distributions each month/quarter. It means I can reinvest the capital which was returned to me in something else and thus have bought two investments with the same money.

      P.S. WHX has never said they pay a DIVIDEND, so actually it sounds like you have no idea what you are talking about.

      • 2 Replies to lizahuang54321
      • Please look at financial website or wikipedia to find out what is Return OF Capital - and what its consequence is ( or should be ) on the stock price or equity of the company. I have no problem if investors jump up and down on receiving Return OF Capital - all I am asking is - it should be DISCLOSED.

        Coming to WHX - according to seeking alpha, the trust will end at the beginning of 2015 - which means the trust will distribute another $7 till then. Why should one pay $7 in share price NOW to get back $7 OVER TIME. Am I MISSING something ?

        Sentiment: Strong Sell

      • Could not agree more with Liza! During the first 60% of the expected life of the trust, level of production is what matters. Oil or NG prices are the moving component, the production is second. At first the trust declared capital is not necessarily on line. The production starts as soon as possible, therefore the production will ramp up, than the production will level out for around 30% of the life of the trust. The production infrastructure is design for a maximum economic return. In other words, the infrastructure will perform at its maximum rated efficiency for an extended period of time. Than the production will slowly go down as the reservoir loses pressure. Effort may be taken to artificially keep pressure such as injection and/or work over. But a cost benefice analysis will ultimately lower the production efficiency and production will go down. The daily price of oil or gas will be the main mover, should these prices compensate the lost production, the trust is still profitable, and distribution kept high. As the last 30% of the life of the trust goes by, the unit price will be volatile. This is the situation at hand with WHX. As long as prices of oil and or gas are high, distribution will be adequate. The gamble is to bit on the unit price lose versus the level of distribution. WHZ is in the “revenue” phase of its life, WHX is in its Las Vegas phase.

    • This is not a scam, it means that some invest and have no clue of what a US trust is. To start with US trust do not have dividend, it is called distribution. The price of the unit, not stock or shares, represent the value of the Oil or Gas or Liquid in the hole, or a Unit of that value. None of the infrastructure is associated with a trust. A US trust is a totally different animal than a MLP.
      WHX will terminate when the stated, see the bylaws, production volume is arrived at; it is projected to be in 2015. Once attained the price of the last production revenue, less management expenses, will be distributed. The US trust is the fastest way to recoup the development costs. The trust is the amount of projected production over time, divided by the number of unit that will attract buyers.
      If in 2015 the price of oil and/or gas is $200 or $50 for gas, the last distribution will be a gang buster. That is the gamble at hand. The money to be made is a pie in the sky, but I believe money can be made. Holding this WHX long term is a folly. My view is the difference between the distributions versus the Xdate price is the money to be made. I expect the Unit to lose $1 or $2 dollar per Xdate. The gamble is, really, what will be the unit price at the last distribution and what will be the distribution. This difference will tell the potential profit or lost. So go at it, good luck!

      • 1 Reply to ousaouparis
      • You said it - "The price of the unit, not stock or shares, represent the value of the Oil or Gas or Liquid in the hole, or a Unit of that value.".

        So my question is assuming stock price = unit price, why would anyone buy a share ONLY to get back the SAME AMOUNT of MONEY. One might as well keep that money in the mattress or bank. So the SHARE PRICE has to be LOWER THAN the UNIT PRICE - that price difference minus the time value of money is what a person actually earns.

        70% of my distribution in the 1099-DIV was ROC. ( There are many other SO-CALLED dividend paying REITs, companies etc where the same holds true ). The IRS forces you to reduce your COST BASIS by the ROC. Why ? Because IRS expects the market to be smart and reduce the share price by an equal amount. Because the market is too busy watching Kardashians or sports to open their 1099-DIVs, they don't reduce the price - either after a distribution or after 1099-DIVs arrive. Only in July this year, the market woke up once. Is that the last time ? Time will tell.

        Sentiment: Strong Sell

    • What Congress or the SEC should do is require an investor to pass a test on a security before they can invest in it.
      1: Its not a dividend its a distribution. I'm not being a grammar nazi here there is a huge difference.
      2: Because of that difference.... yes of course part of it is RoC. ALL royalty land trusts have that.

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