The 10 Highest-Yielding Royalty Trusts

Dividend investing is popular again. Investors have taken to heart Jeremy Siegel's studies, which show that higher-yielding stocks tend to offer greater returns over time than low- or no-yield stocks.

One particular area has garnered interest over the years are royalty trusts. Investors are drawn to royalty trusts for their high yields. Royalty trusts don't pay taxes at the corporate level, so the tax burden then gets passed to the investor. One thing to consider, however, is that unlike normal operating businesses, most trusts are depleting assets. Eventually the income-producing ability of the trust will end.

The highest yields can be very tantalizing. As long as a stock yielding 15% doesn't lose value, you'll make 15% in one year! In more cases than not, however, an astronomical yield is a bad sign for a stock. Since yields and stock prices move in opposite directions, a high yield usually means that investors have begun to worry about the business and driven down its stock price.

However, certain types of companies such as royalty trusts have to pay out most of their cash flow as distributions, so their yields will be higher than "normal." Dividends are not guaranteed; you need to make sure that a business is generating enough cash to pay its dividend, or your investment could be disastrous.

I ran a screen for the highest-yielding royalty trusts. The only limitation I've set is the royalty trusts must have a market cap greater than $100 million.

Here are the top 10 highest-yielding royalty trusts the screen produced:

 

Company

Market Cap (in millions)

Yield

1

Whiting USA Trust I (NYSE: WHX  )

$240

13.2%

2

Great Northern Iron Ore Properties (NYSE: GNI  )

$185

10.1%

3

MV Oil Trust (NYSE: MVO  )

$450

9.6%

4

BP Prudhoe Bay Royalty Trust (NYSE: BPT  )

$2,451

8.3%

5

North European Oil Royalty Trust

$279

7.3%

6

Mesabi Trust

$490

6.9%

7

Permian Basin Royalty Trust (NYSE: PBT  )

$988

6.7%

8

Hugoton Royalty Trust (NYSE: HGT  )

$867

6.6%

9

San Juan Basin Royalty Trust (NYSE: SJT  )

$1,164

6.6%

10

Dominion Resources Black Warrior Trust

$119

5.8%

Source: Capital IQ, a division of Standard & Poor's.

These royalty trusts are a good place to start your research, but they're not formal recommendations. Remember, their seemingly irresistible yields could be ticking time bombs, so do your own due diligence. Also, make sure you diversify your picks across various sectors. As investors relearn every decade or so, you never want to put all your eggs in one basket -- no matter how tempting the yields are.

If trusts aren't for your thing, for a basket of some high-yield dividend opportunities, click here to get The Motley Fool's five-page free report: "13 High-Yielding Stocks to Buy Today."

Dan Dzombak's musings and articles he finds interesting can be found on his Twitter account: @DanDzombak.

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Read/Post Comments (3) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 23, 2011, at 8:29 PM, Glycomix wrote:

    Warning! Bridge-out! Great Northern Iron Ore Properties (GNI) is a Death-trap! It ends in three years.

    In "A Massive Dividend You'd Be Crazy to Buy" on January 6, 2011, Matt Koppenheffer wrote: "On April 6, 2015, the properties of the company will be transferred to Conoco Phillips (NYSE: COP ) , the company will be dissolved, and the stock shares retired."

    I know you must come up with new ideas, but

    if one of you says "This stock will KILL you!", why doesn't the rest of Motley Fool pay attention?

    this disturbs me because I would have invested in this thing if I hadn't already seen Matt Koppenheffer's article. Let me explain.

    GNI popped out in a screen I did for "overlooked winners" based on some ideas espoused by Buffett and Graham. High Margin and dividends.

    Although I already knew this stock was dangerous, I decided to test my resources and see if any of the 'stock advisors' warned against investing in GNI.

    I did my due diligence. I looked for warnings, but there wasn't any. The S&P article on it didn't say anything. Market Edge moved it from "Avoid" to "Neutral" based on technical indicators. II looked over its last 10 years of reports They look great!

    NO one warned against this security.

    Although one share of GNI stock is currently listed at $126.28, in four years it will be worth whatever is in the fund. If it were dissolved at the end of 2010, you'd receive $8.25. http://www.gniop.com/termination.html

    The dividend for the past three years were $11.65, $7.63 and $11.75; this totals to $31.03. My wild guess is that present value of GNI be worth somewhat less than $30? There's only 3 years until it's dissolved! There's a marked difference between a present value of $30 and a stock price of $126..28 !

    I'm writing to warn those who are ignorant of these facts. I didn't make a present value computation of GNI. If anyone cares to, they can do it for themselves.

    To be fair, the GNI 10K warns about the dissolution when they start defining terms. I find reading these definitions mind-numbing, but now necessary.

    http://www.sec.gov/Archives/edgar/data/43410/000089710111000...

    The Great Northern Iron Ore Properties website provides a chatty history of the trust, which happened to be listed on the NYSE in 1906. GNI does warns about the division of the trust in 2015 in their LAST paragraph, the 10th. However, it warn you in the first line.

  • Report this Comment On March 23, 2011, at 9:49 PM, Glycomix wrote:

    I hate egg on my face. Let me try to clean up some of the mistakes I've made above:

    - It's FOUR years to April 6, 2015, not three

    - I listed the 'earnings per share as dividends. The last four years of dividends were $12.25, $8.00, $11.70, and $10.00. That totals to $41.95.

    I'd still estimate the present value of GNI stock at closer to $41 than the price of $126.28!

    The GNI website said that the current value of the company divided among stockholders would be "about $8.22 per share." http://www.gniop.com/termination.html

    How much of that would be dividend and how much of the 'rest of the trust' would be left after subtracting debt?

    All of this shows the importance of reading each company's 10K. Other summary services don't do the job. You have to.

    For instance, Reuters makes NO MENTION of the transfer of all assets to Conico Phillips on April 6, 2015 in its 'overview' of "Great Northern Iron Ore Properties". http://www.reuters.com/finance/stocks/companyProfile?symbol=...

  • Report this Comment On September 23, 2014, at 4:23 PM, bok2 wrote:

    What do you think of GNI now at the current price (under $30 a share)? Is there a problem with buying in for the dividend and selling after the record date?

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