Stock of the Day

Every now and then when doing research you come across an unusual stock that is completely unknown. The stock that fits the bill today is called Pittsburgh & West Virginia Railroad. Pittsburgh & West Virginia Railroad is a $ 14 million market cap company that trades on the curb under the symbol PW. Now before I tell you about it, just because I mention a stock as Stock of the Day does not mean I am recommending that it be bought. It is more something that caught my eye, a relief from the mediocrity of relative performance induced boredom where everyone owns and buys and talks about the same stocks.

PW is essentially a captive company associated with Norfolk Southern Corporation (NSC). PW owns a 112 mile track that runs through Pennsylvania, West Virginia and Ohio, that it leases to NSC under a 99 year lease that was signed in 1964. This lease is renewable for a unlimited number of 99 year periods. NSC pays PW annual rent of $915,000 essentially in perpetuity. Please note there is no escalation clause in the lease. They paid $915,000 in 1964 and they paid $915,000 in 2006 and they will pay $915,000 in 2064!!!

The company has very little in expenses as you can imagine, and it pays out a steady dividend that has varied from $0.12 - 0.14 per quarter for as long as I can get data (back to 1980 on Bloomberg.) The yield is nearly 6%.

So of course the first thing that comes to mind is that this stock is a purchasing power death spiral as eventually your dividend will be eaten up by inflation and even get to the point where there will be nothing to payout. After all, how much will it cost to rent an office and buy supplies in 2064? Maybe more than $915,000 a year?

However if you look at the performance of this stock, including reinvesting dividends, which I don't know if the company actually has a dividend reinvestment plan, it has returned an total return of 128.50% since 2/28/97 (through the end of february 2007.) This comes to an annual return of 8.61%, beating the S & P 500 return in the same period of 7.62%.

If anyone has any experience with this stock or comments, feel free to contact me.