Royalty Units

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.

BREAKING DOWN '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. Dividend

    A distribution of a portion of a company's earnings, decided ...
  2. Trust

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

    A tax law that causes the same earnings to be subjected to taxation ...
  4. Royalty

    A payment to an owner for the use of property, especially patents, ...
  5. Income Trust

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

    A type of special-purpose financing created to hold investments ...
Related Articles
  1. 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.
  2. 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.
  3. Term

    Understanding Market Price and Its Changes

    An asset’s or service’s market price is the current price at which it can be bought and sold.
  4. Options & Futures

    What Does Quadruple Witching Mean?

    In a financial context, quadruple witching refers to the day on which contracts for stock index futures, index options, and single stock futures expire.
  5. Professionals

    Is A Stockbroker Career For You?

    Becoming a stockbroker requires a broad skill set and the willingness to put in long hours. But the rewards can be enormous.
  6. Investing Basics

    How to Pick A Stock

    The first step in picking stock is to determine your goals.
  7. Investing Basics

    5 Tips On When To Buy Your Stock

    Buying stocks that make you money can be a satisfying experience for a variety of reasons, not the least of which is the impact it has on your bottom line.
  8. Investing

    Where to Ride Out the Volatility

    The one word that characterizes financial markets today: volatile. Take a look at these three considerations.
  9. Stock Analysis

    The Top 5 Micro Cap Telecommunication Stocks for 2016 (CLFD,LMOS)

    Identify and learn about five of the best micro-cap telecommunications stocks to consider for your diversified portfolio for 2016 and beyond.
  10. Investing News

    Can Oil Sink More? Experts Give Mixed Opinions

    Plummeting oil prices are the gift that keeps on giving. Not. BlackRock's Larry Fink is among those who say we haven't hit rock bottom.
RELATED FAQS
  1. 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) ... Read Full Answer >>
  2. 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 >>
  3. 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 >>
  4. How does the stock market react to changes in the Federal Funds Rate?

    The stock market reacts to changes in the federal funds rate in various ways depending on where it is in the business cycle. ... Read Full Answer >>
  5. How do I place an order to buy or sell shares?

    It is easy to get started buying and selling stocks, especially with the advancements in online trading since the turn of ... Read Full Answer >>
  6. Is there a difference between financial spread betting and arbitrage? (AAPL, NFLX)

    Financial spread betting is a type of speculation that involves a highly leveraged derivative product, whereas arbitrage ... Read Full Answer >>
Hot Definitions
  1. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  2. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  3. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  4. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  5. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  6. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
Trading Center