Many investors are unfamiliar with the world of energy trust investments, those peculiar corporate entities that buy up productive assets from oil and gas producers, package them and then resell them to investors looking for securities with higher payouts. Essentially, investors are buying a piece of the cash flow from those purchased assets – royalties on the wells, in this case – that are repaid to them by way of a dividend.

IN PICTURES: 10 Tips For Choosing An Online Broker

An Investment Without Borders
These investments have become very popular in both Canada and the U.S. in the last decade. Below is a highlight of a number of the slickest names from both sides of the border.

Harvest Energy Trust (NYSE:HTE) collects revenues from properties mainly in Western Canada, though it operates a refinery in Newfoundland that produces 115,000 barrels a day. The shares pay a mighty 9.5% dividend (5 cents per share announced for the month of June, 2009) and trade with a very comfortable price/earnings multiple of just 4.5.

Harvest Energy stock is up over 100% in the last three months trade.

Zargon Energy Trust (OTCBB:ZARFF) trades 25% above its 52-week lows, but the payout on this trust is an eye-popping 13% annually (18 cents per share announced to be paid on July 15). And for those who doubt, Zargon is one of the few oil and gas trusts that saw in increase in its last dividend move. Zargon has maintained its current payout level for 43 months. The P/E on this oil exploration company is 4.5-times last year's earnings.

Drilling for Cash Dividends
Precision Drilling Trust (NYSE:PDS) has assets in the drilling business, including over 200 rigs in Canada, 150 in the U.S. and a few more operating in Mexico and Chile. In addition to the rigs, Precision Drilling supplies the camps with everything from catering to wastewater facilities. (To take advantage of all your investing options, you need to know them, read 20 Investments You Should Know.)

The trust is up nearly 200% from mid-March, when it traded for a mere $2, to stand currently at $5.50. Ironically, the move began directly after the trust suspended its monthly distribution, citing the need to shore up its balance sheet and more effectively meet its debt obligations. Precision Drilling trades with a P/E of 3.5.

Crescent Point Energy Trust (OTCBB:CPGCF) is an active Canadian acquisitor of oil and gas assets of all stripes. In just the last year, Crescent Point acquired four major companies or divisions, including their recent purchase of assets of Talisman Energy Inc. (NYSE:TLM) on March 4, 2009.

Crescent Point yields 8.40% annually and trades with a P/E ratio of 8.19. The trust's shares are up 75% since bottoming last December. Crescent Point was another in that elite group thats last move with the dividend was to increase it. (Unit investment trusts provide direct exposure to the energy sector, fueling better returns, for more see Investing In Oil And Gas UITs.)

The Wrap
Trust investments have to be understood before they're placed in a portfolio. But for those who can find a place for them, these energy-related royalty trusts offer great regular payouts and, if oil keeps rising, a chance for outsized capital gains.

Related Articles
  1. Investing Basics

    What Does Plain Vanilla Mean?

    Plain vanilla is a term used in investing to describe the most basic types of financial instruments.
  2. Investing

    Have Commodities Bottomed?

    Commodity prices have been heading lower for more than four years, being the worst performing asset class of 2015 with more losses in cyclical commodities.
  3. Stock Analysis

    5 Cheap Dividend Stocks for a Bear Market

    Here are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
  4. Investing

    How to Win More by Losing Less in Today’s Markets

    The further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
  5. Investing

    The Quinoa Quandary for Bolivian Farmers

    Growing global demand for quinoa has impacted Bolivian farmers' way of life. Should the American consumer be wary of buying this product?
  6. Options & Futures

    Pick 401(k) Assets Like A Pro

    Professionals choose the options available to you in your plan, making your decisions easier.
  7. Fundamental Analysis

    Use Options Data To Predict Stock Market Direction

    Options market trading data can provide important insights about the direction of stocks and the overall market. Here’s how to track it.
  8. Professionals

    How Brokers are Candy-Coating Alternatives

    Alternatives have become a sexy choice for many advisors. But they also come with additional risks that are not always clearly spelled out to clients.
  9. Stock Analysis

    2 Oil Stocks to Buy Right Now (PSX,TSO)

    Can these two oil stocks buck the trend?
  10. Investing News

    What Alcoa’s (AA) Breakup Means for Investors

    Alcoa plans to split into two companies. Is this a bullish catalyst for investors?
  1. Can mutual funds invest in options and futures?

    Mutual funds invest in not only stocks and fixed-income securities but also options and futures. There exists a separate ... Read Full Answer >>
  2. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  3. Where do penny stocks trade?

    Generally, penny stocks are traded through the use of the Over the Counter Bulletin Board (OTCBB) and through pink sheets. ... Read Full Answer >>
  4. Where can I buy penny stocks?

    Some penny stocks, those using the definition of trading for less than $5 per share, are traded on regular exchanges such ... Read Full Answer >>
  5. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  6. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!