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Top American Royalty Income Trusts - 10867 views
The following commentary comes from an independent investor or market observer as part of TheStreet’s guest contributor program, which is separate from the company’s news coverage. The opinions expressed are those of the author and do not represent the views of TheStreet or its management.
SAN FRANCISCO (Stockerblog) -- Now that oil is over $100 a barrel, income investors are taking a closer look at oil and gas income investments. Several options are available. First, there are the stocks of the multinational oil companies, such as Exxon Mobil (XOM), with a 2.1% yield, and ConocoPhillips (COP), which has a 3.3% yield.
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But there are other investment instruments, including oil income royalty trusts, oil master limited partnerships (also known as MLPs), and one example of a publicly traded limited liability company, or LLC. Income from trusts and MLPs avoid double taxation; virtually all earnings are passed through to the shareholders without being taxed at the company level.
The royalty trusts have several advantages over the partnerships. Limited partnerships don't send out 1099 forms; they send out a Schedule K-1 Form, and the income is reported on your tax return differently from regular dividends, with additional forms and preparation time involved. In addition, putting an MLP into a retirement plan can create problems because of the UBTI or Unrelated Business Taxable Income issue, which could put the tax deferred status of your retirement plan in jeopardy. I am not an accountant, so discuss MLP's with your tax advisor or CPA for clarification, before investing.
The royalty trusts don't have this problem. They send out 1099's on their income distributions, similar to dividends. At WallStreetNewsNetwork.com, we've several different oil royalty income trusts with yields ranging from 4% to above 11%.
For example, Hugoton Royalty Trust (HGT), which trades at 13.8 times earnings, pays a generous yield of 6.7%. This Dallas-based company pays dividends monthly and was founded in 1998.
San Juan Basin Royalty Trust (SJT) yields 6.6% and sports a price-to-earnings ratio of 6.6%. It also pays monthly dividends and was founded in 1980.
Mesa Royalty Trust (MTR) has been around since 1979. It trades at 13.8 times earnings and yields 5.7%. As with most other oil trusts, distributions are made monthly.
When you check out the free list of oil income investments at WallStreetNewsNetwork.com, pay close attention to the last column, which shows the company structure, either limited partnership, trust or LLC. Also, although a few of these have extremely high yields above 8%, use caution before investing as the yields may not be sustainable.
At the time of publication, author had no positions in stocks mentioned.
Fred Fuld III, the publisher of stock and bond investing blog Stockerblog and founder of WallStreetNewsNetwork, has been in the financial services industry for over 20 years, working as an investment advisor, options market maker at the Pacific Stock Exchange, vice president of a San Francisco money management firm, university faculty member and wholesaler for the New Alternatives Fund (the first environmentally conscious mutual fund). He is the author of the books Investing in Brazil Stocks and The Green Light on Green Stocks.