Royalty Units

AAA

DEFINITION of 'Royalty Units'

An ownership unit in a royalty trust. A royalty unit gives the unit holder a stake in the income generated by the holdings of the trust. A royalty trust takes ownership stakes in operating companies or in their cash flows. The royalty trust owns the income or cash flow that the company generates and passes this income on to the royalty unit holders of that trust. Royalty units are seen as an attractive investment because the income generated by the assets is subject to taxes at the individual level, rather than the double taxation which is seen with dividends on common stock.

INVESTOPEDIA EXPLAINS 'Royalty Units'

For example, let's say that an investor holds a royalty unit in ABC Oil & Gas Royalty Trust, which owns several oil-producing operations. The investor in the royalty trust will receive income distributions as the underlying oil-producing operations generate income for the trust. If the trust's assets generate $1 million dollars and there are 100,000 royalty units, each unit will receive $10.

RELATED TERMS
  1. Trust

    A fiduciary relationship in which one party, known as a trustor, ...
  2. Double Taxing

    A tax law that causes the same earnings to be subjected to taxation ...
  3. Dividend

    1. A distribution of a portion of a company's earnings, decided ...
  4. Income Trust

    An investment trust that holds income-producing assets and trades ...
  5. Royalty Income Trust

    A type of special-purpose financing created to hold investments ...
  6. Royalty

    A payment to an owner for the use of property, especially patents, ...
Related Articles
  1. Taxes

    What is the double taxation of dividends?

    After all is said and done, companies that have made a profit can do one of two things with the excess cash. They can (1) take the money and reinvest it to earn even more money, or (2) take the ...
  2. Mutual Funds & ETFs

    Mine For Profits With Natural Resource Sector Funds

    These funds allow everyday investors to get in on the action in this promising sector.
  3. Options & Futures

    20 Investments You Should Know

    To take advantage of all your investing options, you need to know what your choices are. Here we tell you about the diverse features and advantages of 20 different financial instruments.
  4. Bonds & Fixed Income

    What are the benefits and drawbacks of owning preferred stock and common stock?

    Owning a share of a company can be accomplished through the purchase of common or preferred stock, but there are benefits and drawbacks for each option.
  5. Investing Basics

    What is the simplest kind of company stock?

    Learn about the simplest type of stocks. Explore growth and dividend investing strategies and examples of companies whose shares are available for investment.
  6. Investing Basics

    When is it beneficial for underwriters to sell stock below the minimum rate?

    Learn when selling stock below the minimum rate can be beneficial. Find out how the 1987 market crash affected an offering of British Petroleum shares.
  7. Investing Basics

    What is common stock and preferred stock?

    Learn about the differences between common and preferred shares. Explore situations where preferred shares have more favorable rights of ownership.
  8. Investing Basics

    Are over-the-counter stocks different from other stocks?

    Explore the difference between stocks traded over-the-counter and those listed on the NYSE or Nasdaq. Learn how price affects prospects for a stock.
  9. Investing Basics

    What assets are most risky and what assets are safest?

    Learn about the safest and riskiest assets to invest in. Explore savings accounts, T-bills, certificates of deposit, equities and derivatives.
  10. Investing Basics

    How do regulators ensure that markets are conducted at arm's length?

    Learn about arm's length transactions and how the Investment Advisers Act allows stockbrokers to sell securities based on suitability reviews.

You May Also Like

Hot Definitions
  1. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  2. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  3. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  4. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  5. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  6. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
Trading Center