Royalty trusts are great (and popular) - up until a dividend cut can seriously ding their unit...

Royalty trusts are great (and popular) - up until a dividend cut can seriously ding their unit prices. Oil and gas wells and mines get more depleted, and thus yields are doomed to decline. Great investments at times, the trusts are far from bargains today, with many investors apparently willing to buy on current yield alone.

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Comments (7)
  • untrusting investor
    , contributor
    Comments (9903) | Send Message
    Good article on the royalty trusts. Yes, many are substantially overvalued on a future cash flow basis.
    25 Aug 2012, 10:00 AM Reply Like
  • Whitehawk
    , contributor
    Comments (3121) | Send Message
    On the other hand, if you get a K-1 for your ownership in a royalty trust taxed as a partnership, there will be a writeoff for depletion, which can make up for reduced distributions.
    25 Aug 2012, 02:50 PM Reply Like
  • JackRasmussen
    , contributor
    Comment (1) | Send Message
    Yield one should buy on is current yield less depletion.
    Compare this with your money market yield with more risk.
    25 Aug 2012, 05:02 PM Reply Like
  • Rhianni32
    , contributor
    Comments (2086) | Send Message
    He makes good points but he picks terrible examples. He picked two natural gas trusts. Of course they dropped in distributions, nat gas went from $8 down to $2 and HGTs recent cut is due to a lawsuit not declining production.
    26 Aug 2012, 09:48 PM Reply Like
  • 1Engineer
    , contributor
    Comments (4) | Send Message
    The Seeking Alpha site continues to publish articles that are misleading concerning trusts in what could be construed as an attempt to drive their values down. The distributions from some trusts come from sale of defined quantities of oil and gas. The distributions end or drop not when the field is depleted -- but only when the defined quantities of oil and gas in BTU or oil equivalents have been produced. The distributions are also affected by the price of oil and gas. Further, the link in this Market Current takes you to an article that appeared in the Wall Street Journal Insider which was challenged as misleading. The reprint reached by the link does not show the comments challenging the original Wall Street Journal article's validity. This market current also does not reveal that the Wall Street Journal article was followed on the succeeding Monday by a raid on the BPT trust similar to the raid on WHX staged by another misleading article published by Seeking Alpha that dropped its value by 50%. You can thank the SEC's enforcement division for its great job in policing the information published on the web that seeks to affect (read "manipulate") the decisions of individual investors.
    2 Sep 2012, 10:48 PM Reply Like
  • aretailguy
    , contributor
    Comments (2080) | Send Message
    1Engineer, unfortunately it matters not whether something is published in Seeking Alpha or the Wall St Journal or ANY OTHER publication, opinion is frequently labeled as fact. I do believe that some of the royalty trusts are overvalued. In fact, I currently own some that are overvalued and I will continue to own these as they were good values when I purchased them and they are functioning exactly as I had hoped when I bought them. Regarding the SEC, have they pressed charges against Jon Corzine yet for using individual's accounts for making house trades at MF Global? How about charges against Solydra insiders? It is not possible nor even desirable for the SEC to regulate free speech. They have their hands full controling insider trading and the penny stock pump-and-dump crowd.
    17 Sep 2012, 05:08 PM Reply Like
  • Tommy8737
    , contributor
    Comments (43) | Send Message
    I myselft believe the TRUST in yield and capital return in total package . The business model of TRUST , which generate income with no asset and minimum sg&a cost is a ideal model . But need to choose the write trustee . Some really is caliber skill , some is dramatic skill , and some in bad skill then of course you can see the sales & renevue .


    I myself make a TRUST FUND among my close friend call "TKH TRUST " to invest in stock market . Which I believe to generate 100% return with quarterly dividend distribution should not be a problem in a year.


    Thus , i trust to the figure in WHX report . I invest some unit in this counter , which my friend all say " NO " due to the article & termination period .


    But I say YES ! Due to WHX CANNOT Drop to DEPLETION stage in what ever side of thinking . Why ?


    In Trustee SIDE : who will further trust to TRUST ! ? Either lock with capacity or period .
    In whitening side : how they can introduce a future " TRUST " in future time ? Eg WHZ , WHY , WHW?
    In short seller or long buyer site : they can't play around these catagories counter which consider "invisible counter ". No asset , no product , .....but figure games & articles games only . ! Which is their most like gaming counter categories .


    I am not long or short any WHX position . Just an investor to buy cheap counter and keep in my investment portfolio . !
    12 Jan 2013, 06:00 AM Reply Like
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