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Texas Pacific Land – The Ultimate Buy And Hold Stock
Warren Buffett has been quoted as saying his favorite holding period for owning a stock is “forever.” In this article we are going to analyze Texas Pacific Land (TPL), a company that an investor just might want to hold “forever.” In what could be called the “ultimate stock buyback program,” TPL is using multiple income streams to eventually repurchase all of its outstanding shares. Texas Pacific Land Trust is a passively managed liquidating trust that was established in 1888 as the result of the bankruptcy of Texas & Pacific Railway. It was granted over five million acres of land in Texas to build a railroad from Marshall, Texas to San Diego, CA. Ever since, the company has been slowly liquidating its land holdings and buying back the sub-shares of the Trust. For a more detailed summary of the history of TPL, readers can go here
The stock has increased 10 fold in the last 10 years and is not a typical type of investment we would discuss. But the uniqueness of the business model, the hidden value of the land on the books and the incremental benefit shareholders receive from higher oil and gas production and prices make it worth writing about. The company is currently buying back around 3-4% of its shares each year and under our base case scenario it appears as though the company can sustain a 2% buyback rate. As some point things will change and stocks will sell off. Many reasons will be given for the proximate cause and most will sound plausible and may actually be true. TPL stock may decline in value as well. Oil prices may plunge on China or European disaster fears or some other reason. But investors who stay focused on the long term strategy of TPL and view price declines as an opportunity, not a risk, should enjoy the benefits of buying low and holding “forever,” thus eventually being rewarded for their patience.