You guys know that I pride myself on scouring the entire interwebs (especially all the porn) in search of finding some of the most interesting financial topics. Or, I just find some BS and try to make a financial point out of it, usually the night before, because I’m desperate for some sort of content. Hey, you’re all the morons who read this crap.
Recently, I came across what may be the most unusual stock I’ve ever seen. It has no balance sheet. It produces no cash flow statement. It has an income statement that is only 7 lines long. It doesn’t own a factory, or any real estate, or even any inventory. What is this mystery stock? Are you literally breathless with anticipation?
Okay, enough teasing. It’s called the Mills Music Trust, and it is quite the interesting stock. First off, it’s small. There are only 277,000 shares outstanding, so it trades on the pink sheets. (The pink sheets is the over-the-counter market, it trades there because it isn’t big enough to meet the listing requirements of the major stock indices.) It has a market cap of just over $11 million. In the scheme of things, it’s a pretty small company.
What does it do? The trust owns the rights to over 25,000 copyrighted songs. Whenever one of those songs is downloaded or played on the radio, EMI Music receives a royalty. EMI keeps some of that royalty and pays the rest back to Mills. Out of those 25,000 songs, only around 1500 actually generate revenue for the trust, the rest just aren’t popular enough.
It’s it. That’s the whole business. It’s more simple than an article from The Simple Dollar. There’s some administration costs, as well as the cost of the auditor to make sure EMI is paying the proper royalties. Once those are paid out, the rest of the royalties get distributed to shareholders. Check out the dividend history:
2011 – $2.53
2010 – $3.21
2009 – $3.47
2008 – $2.91
2007 – $3.51
2006 – $4.48
Over the past 6 years, the company has paid $20.11 in dividends. It currently trades at $40, after rising $3 on Friday. Why did the stock have such a good day? Well, the stock only traded 250 shares (it’s illiquid on the best of days, trading only 550 shares on an average day) , and the ex-dividend date was the day before, so it’s entirely possible an overzealous investor put in a market order the day before, hoping to get in on time to be eligible to collect the 81 cent dividend that will be paid to shareholders March 28th.
The copyright period for music is 95 years. Meaning, if the song was originally recorded in 1917, the copyright would finally be expiring this year. Out of Mills’ top 50 royalty generating songs, the soonest one losing copyright isn’t going to happen until 2018. In fact, the top 10 songs account for 66% of all revenue. What are these top 10 songs? As of the time of the formation of the trust in 1964, these were the top 10:
- Stardust (1927)
- When You’re Smiling (1929)
- The Syncopated Clock (1945)
- Moonglow (1933)
- Sleigh Ride (1949)
- I Can’t Give You Anything But Love (1928)
- Caravan (1937)
- Blue Tango (1952)
- Mood Indigo (1930)
- Who’s Sorry Now? (1923)
The two songs which generate the highest amount of revenue stand to enter the public domain in 2022 and 2024, respectively. If you look at last year’s dividend ($2.53) and today’s share price ($40), you get a yield of 6.3%. Considering you’re looking at only 10 years of royalties from the most popular song, I’m not really that excited about a 6.3% dividend. The company is also trading at a multi-year high, and we all know interest rates will eventually start to rise, meaning there’s significant risk for the company’s shares to lose value.
On the plus side, there’s basically no risk of people illegally downloading these songs, SINCE THEY ALL SUCK. Although, Stardust has been covered by just about every artist alive. Seriously, go check out its Wikipedia page. Somebody apparently forgot to tell them it wasn’t any good.
But we don’t care about the quality of the songs, we care about making money! (And boobies) Guess who the largest shareholder is? It’s everybody’s favorite Beatle, Sir Paul McCartney. McCartney’s company, MPL Communication, owns 79,600 shares, or about a quarter of the company. McCartney also owns a quarter of Apple Music, which owns the copyrights to all The Beatles songs. That company would be a much more attractive investment, but I digress.
Remember all the trusts that used to clog up the Canadian stock market, back before the government squashed them in 2006? If not, go read this. Because the trust pays out in excess of 95% of its earnings to unitholders, the trust doesn’t pay income tax. The income is taxed in the hands of the unitholders.
Would I buy this investment? Not at $40. At current levels, the stock doesn’t have a high enough yield to get me excited. The top 2 songs are scheduled to go off of royalty in just a decade, meaning there’s significant risk of a major sell-off shortly before that. I guess you could buy it, collect your dividend for 5 years, and then sell it before this happens. If interest rates rise in the interim, there’s no doubt the stock price will fall. I’d be interested if the stock fell to $25 or so, it’s just too expensive right now.