Get Rich - Stay Rich - Investing for Monthly Income

Posts Tagged ‘royalty trusts’

Where to Find High Yield Dividends in a Low Yield Environment

Income investors continue to be pulled down as the trend on interest rates are affecting their ability to earn income. The rate on the 10-year U.S. Treasury Note has declined from above 3.0% in November 2018 to briefly cross under 2.0% earlier this week — its lowest level since 2016. I think everyone will agree that 2% does not meet most income goals.

In the recent past, income investors have focused on bonds and dividends from stocks to serve as investment income. Today, the overall yields are lower for new money. There are a number of opportunities to create high yield income. Here are a few on my list:

1)      Sell calls on the stocks in your portfolio. This can create 2-4% of premium income each month on your stocks. There is a risk of having your stock called away but this is a tradeoff to produce higher incomes. We do this monthly to generate income in the Get Rich Monthly Income Plan;

2)      Invest in ETNs (exchange-traded notes) that produce high yields. We recommend notes paying monthly dividends. A couple to evaluate include MRRL with a 23% yield, SMHD with a 22% yield, CEFL with a 17% yield to name a few.  We have a comprehensive list of these investments with yields above 15% available to subscribers;

3)      Monthly dividend stocks with high yield. These include OXCL with a 16% yield, ORC with a 15% yield and others. You must be interested to have such high yields with monthly payments;

4)      Royalty trusts that pay monthly income can be a great way to diversify your holdings. This includes investments such as ROYT with a 15% yield, PRT with a 12% yield and PVL also with a 14% yield; You can also find trusts in metals such as gold and natural resources;

5)      ETFs of various types can provide high yield. This may include JQC at 15% yield, CEN at 16% yield and more.

As you can see, there seems to be endless opportunities to invest for high yield. If you select from the types of investments listed, you can create a diversified portfolio for all market conditions. And, the stocks and funds listed here all pay monthly dividends. Imagine having 30 or more monthly paychecks via passive investing – I call this living the life!

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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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How to Invest for Monthly Dividends

This is the first in a series of articles based on types of vehicles that pay monthly dividends.

Many people have the desire to increase their monthly income which leads to various activities to accomplish this objective. They may work extra hours at their job, start a side business or stuff envelopes for a few extra dollars. These tasks are all legitimate ways to make more money. But most are not aware of the simple way to increase monthly income by getting monthly dividend checks.

Truth is that many people don’t realize that this is a great time to invest in dividend securities. Yes, the market was scary throughout 2008 and 2009 as the markets tanked and the economy sunk into a recession. Unemployment reached double digits in many areas across the United States. During volatile times, investors watch as their growth and technology stocks get hammered until they reach new lows in price. However, the best time to invest is when there are signs of an improving economy. This is what has happen over the last six to 12 months as the markets started trending up and stock prices reached new 52-week highs.

So why would you invest when the market has already started to recover? During the economic meltdown lead by the imploding debt crisis, companies started to batten down the hatches by conserving their cash. During the last few quarters, companies in the S&P 500 had more cash and current assets on their balance sheet than in the last decade. There are several things companies can do with this cash. But the one that is of interest to us is companies using the cash to increase dividends. Therefore, if you purchase stock in a stable company, there is a better than average chance that the dividend will increase in the future.

This increase in dividends will be a positive for many investments that pay monthly dividends. The result being that your dividend yield on cost increasing over the next few years. Generally, when dividends increase the share price will follow. the investor will have more income from the dividend increase and potential for a capital gain if share prices increase. This is the reason why now is a good time for dividend investing.

How do you invest for monthly income? Today, there are several investment vehicles designed to pay monthly dividends. These include closed-end ETFs, business development companies, royalty trusts, REITs and even high-yield corporate bonds. As we progress through this series, each of these investments will be examined in greater detail with specific company names that are potential investments paying dividends of 10% of more. Yes, some of these investments pay at or above 15% yields today.

Here is a couple monthly dividend payers to consider:

Global Net Lease (GNL)

Dividend Yield: 11.22%

Global Net Lease (NYSE:GNL) is another REIT, primarily serving the commercial market. It owns properties in the United States and Europe, and rents to quality tenantslike FedExFamily Dollar and ING Bank, organizations that can not only reliably pay their rent as it comes due, but outfits that tend to stay put once they establish roots.

There’s a bit of a twist Global Net Lease brings to the table that allows it to juice its payout to its current yield of 11.22%, however. It also acquires much of its rental real estate through an arrangement called a sale-leaseback.

In simplest terms, a sale-leaseback lets a property-owning company free up the value of real estate by selling a space it owns to a landlord like Global Net Lease, and then remain in that space as a tenant. It’s a win-win scenario, as the renter enjoys a big cash infusion and Global Net Lease has a tenant already lined up.

Horizon Technology Finance (HRZN)

Dividend Yield: 10.23%

Finally, Horizon Technology Finance (NASDAQ:HRZN) has earned a spot on a list of monthly dividend stocks to mull. As the name suggests, Horizon Technology Finance provides capital to young, upcoming technology outfits, though it doesn’t cater strictly to the tech sector.

It’s also heavily involved in the development of life science and biotechnology companies. Its portfolio includes biotech names like AccuVein and Celsion, along with traditional tech plays like cybersecurity company Control Scan and communications technology player Xtera.

Its results are as erratic as what you’d expect from major technology names, but it’s worth the wild ride. Horizon’s yielding 10.23% at its current price, and it has not had any sustained trouble affording its dividend payment.

Learn more about investing for monthly income here.

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