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How To Get Paid Monthly Royalties

A royalty trust is a type of corporation usually based in the United States or Canada.  In general, trusts usually own oil and natural gas wells, rights to wells or rights to the mineral deposits.  Royalty trusts are similar to real estate investment trusts (REITs) as they are tax free if they payout 90% of income to shareholders.  Most royalty trusts trade on major US stock exchanges.  Others trade in Canada and have a pink sheet listing in the US.

So many corporations were using the trust advantage that Canada changed the regulations starting January 1 2010.  This will force some trusts to convert into a regular corporations which will lower their dividends.  However, this does not  lower their status as monthly income stocks.

Non-Canadian investors owning a Canadian royalty trust is subject to a foreign income tax of 15% of payouts.  This 15% tax can be claimed on US taxes from a Form 1099.  This makes Canadian royalty trusts better investments for taxable accounts in the US.  In non-tax accounts such as an IRA, you will be double taxed by Canada upon distribution date and US when funds are withdrawn from the IRA.  The US royalty trusts do not have a 15% foreign tax so they can be held in tax-deferred accounts.

Over the last six months, there has been a significant quest for high yield investments.  This has decreased the yields on trusts from double digits to single digits because of the increase in share prices.  This lessens the appeal of royalty trusts at time.  It would be better to patiently wait for a market correction to initiate a new position.

Here is one to consider:

Cross Timbers Royalty Trust

TICKER: CRT

MARKET VALUE: $91.7 million

DISTRIBUTION YIELD: 9.9%

Cross Timbers Royalty Trust (CRT, $15.09) has existed since 1991 and earns royalty income from Texas, Oklahoma and New Mexico drilling properties. Most of the trust properties are located in the prolific San Juan Basin and all are owned and operated by the XTO Energy subsidiary of Exxon Mobil (XOM). Production comes from 4,900 oil and gas wells spread across nearly 60,000 acres.

Reduced gas production and higher development costs in 2017 caused trust distributable income to decline by 5% to $6.05 million, or $1.009 per share. Production volume and the monthly distribution have been erratic in 2018. Cross Timbers has paid out 82.5 cents per share to investors through seven months. As long as the average holds steady, CRT should pay out roughly $1.41 – a 9.3% yield that’s actually less than the projected forward yield using the most recent distribution.

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Monthly Dividend Stocks Beating the S&P 500

Comparison of monthly dividend stocks and ETFs to the S&P 500

Click to enlarge

While dividend income is the hot item these days as the yield on fixed income investments is lower than income investors are seeking.  However, you do not want to give up some total return just to lock in a dividend.  The yield on the S&P 500 is only 2% and the price return has been 1% over the last year.  This creates a total return of 3% on the S&P 500. You should use this as the baseline for your income investments.  You can easily find monthly dividend stocks and ETFs that can beat the S&P 500 to make you even more money than just the monthly dividend.

Here are three monthly dividend stocks that have beaten the S&P 500 over the past year: (1) CRT, (2) MAIN and (3) UTG. The chart above shows the stock price returns compared to the S&P 500 over the past year.

Cross Timber Royalty Trust (CRT) is currently trading at $46.50. It has a 1-year price return of 24.05% compared to 1% for the S&P 500. CRT has a current dividend yield of 6.43% paid as a monthly dividend. CRT has a total return (1-year price return and dividend yield) of 30.48%. This is 8 times more profitable than the S&P 500. This is clear evidence that monthly dividend stocks can provide significant income investment returns beating the S&P 500.

CRT Company Profile: Cross Timbers Royalty Trust (Trust) is an express trust. The Trust is a widely held fixed investment trust (WHFIT). The Company entered into Cross Timbers Royalty Trust Indenture between predecessors of XTO Energy Inc. (XTO Energy), as grantors, and NCNB Texas National Bank, as trustee. As of December 31, 2010, Bank of America, N.A. is the trustee of the trust. Approximately 20 of the underlying royalty interests in the San Juan Basin burden working interests in properties operated by XTO Energy. XTO Energy also operates the Penwell Unit, which is the properties underlying the Texas 75% net profits interests and ExxonMobil operates the Hewitt Unit, which is the properties underlying the Oklahoma 75% net profits interests. Other than these properties, XTO Energy and ExxonMobil do not operate or control any of the underlying properties or related working interests.

Main Street Capital (MAIN) is currently trading at $17.50. MAIN has a 1-year price return of 13.77% compared to 1% for the S&P 500. MAIN has a current dividend yield of 8.64% paid as a monthly dividend. MAIN has a total return (1-year price return and dividend yield) of 22.41%. This is 7.5 times more profitable than the S&P 500. Again, this is another monthly dividend stock significantly beating the S&P 500.

MAIN Company Profile: Main Street Capital Corporation (MSCC) is a principal investment firm focused on providing customized financing solutions to lower middle-market companies with annual revenues between $10 million and $100 million. The Company was formed for the purpose of acquiring 100% of the equity interests of Main Street Mezzanine Fund, LP (MSMF) and its general partner, Main Street Mezzanine Management, LLC (MSMF GP); acquiring 100% of the equity interests of Main Street Capital Partners, LLC (the Investment Manager); raising capital in an initial public offering (IPO), which was completed in October 2007, and thereafter operating as an internally managed business development company (BDC). MSMF is licensed as a Small Business Investment Company (SBIC) by the United States Small Business Administration (SBA) and the Investment Manager acts as MSMF’s manager and investment adviser. The Company invests primarily in secured debt instruments, equity investments, warrants and other securities.

Reaves Utility Income Fund (UTG) is currently trading at $25.08. UTG has a 1-year price return of 14.09% compared to 1% for the S&P 500. UTG has a current dividend yield of 6.0% paid as a monthly dividend. UTG has a total return (1-year price return and dividend yield) of 20.09%. This is 6.7 times more profitable than the S&P 500. Again, this is another monthly dividend stock significantly beating the S&P 500.

UTG Company Profile: Reaves Utility Income Fund (the Fund) is a non-diversified closed-end investment Company. The Find’s investment objective is to provide a high level of after-tax income and total return consisting primarily of tax-advantaged dividend income and capital appreciation. The Fund may invest a portion of its assets in foreign securities. In the event that the Fund executes a foreign security transaction, the Fund will enter into a forward foreign currency contract to settle the foreign security transaction. It focuses to invest at least 80% of its total assets in dividend-paying common and preferred stocks and debt instruments of companies within the utility industry. The remaining 20% of its assets may be invested in other securities, including stocks, money market instruments and debt instruments, as well as certain derivative instruments in the utility industry or other industries.

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