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 (Millions)

Yield

1

Whiting USA Trust I (NYSE: WHX  )

$225

17.9%

2

Great Northern Iron Ore Properties (NYSE: GNI  )

$151

12.1%

3

North European Oil Royalty Trust

$309

8.7%

4

BP Prudhoe Bay Royalty Trust (NYSE: BPT  )

$2,369

8.6%

5

MV Oil Trust (NYSE: MVO  )

$458

8.2%

6

Permian Basin Royalty Trust (NYSE: PBT  )

$969

7.9%

7

ECA Marcellus Trust I

$471

7.8%

8

Mesabi Trust (NYSE: MSB  )

$417

7.5%

9

Hugoton Royalty Trust (NYSE: HGT  )

$910

6.6%

10

San Juan Basin Royalty Trust

$1,113

6.6%

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. For example, Whiting USA Trust has such a high yield because the trust is winding down and expects to end operations in 2015. 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 (2) | Recommend This Article (17)

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 June 03, 2011, at 10:45 AM, exeter17 wrote:

    BP set to sunset soon and MSB just cut royalties so I think you need to check your numbers again :)

  • Report this Comment On July 13, 2011, at 8:11 PM, ccjlw wrote:

    GNI will not exist after 04-06-2015 and the stock will be worth $8.22 thats all

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