By Nat Stewart of NAS Trading LLC Dear CKX Lands’ Inc. Management and board of directors: Over the years, you have done an admirable job as stewards of the CKX Lands Inc. (CKX) properties. I am impressed by the high level of stock ownership by the board of directors and by the meager salaries both executives and directors draw from the company. I was also impressed by the recent moves taken to improve corporate governance practices by removing potential conflicts of interest. All things considered, you have done a fine job, an admirable job, of leading CKX Lands, Inc [for more commodity news and analysis subscribe to our free newsletter].
The natural gas industry has exploded in size over the past several years, as new production techniques have increased reserves and driven down the commodity’s price. With the United States potentially holding enough reserves to last a century at current consumption levels, many see natural gas as both an economical solution to a potential energy shortage, and an environmentally friendly alternative to coal and other dirty fossil fuels [for more commodity news and analysis subscribe to our free newsletter].
Investor interest in commodities has surged in recent years, as the lucrative returns and growth potential provided by this corner of the market have successfully attracted even the smallest of investors. And while financial innovation has certainly helped democratize the asset class, investors of all walks should certainly familiarize themselves with the complexities and nuances of this market. In this article, we’ll take a look at seven key terms that all commodity traders should know [for more commodity news and analysis subscribe to our free newsletter]:
Commodity futures markets were originally designed for producers to hedge their risks against unforeseen complications. But as the years went on, more and more retail investors began piling into this asset class, as they enjoyed the diversification benefits offered by hard assets. Now, many long-term buy and hold investors allocate anywhere from 5-20% of their assets to commodity holdings, but that trend may be hitting a roadblock [for more commodity news and analysis subscribe to our free newsletter].
Many energy companies have assets that generate a consistent income over time. For instance, a natural gas pipeline will transport a predictable amount of gas through it each year, generating very stable revenues. These stable revenues often lead to a distribution of earnings to shareholders in the form of a dividend. Unfortunately, investors are double taxed when standard corporations issue dividends – once when the company earns the revenue (corporate income tax) and once when the dividends are paid out (personal income tax). Master limited partnerships (MLPs) solve this problem by eliminating double taxation for revenues derived from qualified sources – as determined by the U.S. Internal Revenue Service. These sources include almost all activities associated with the production, processing or transportation of oil, natural gas and coal assets in the U.S. [for more MLP news and analysis subscribe to our free newsletter].