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.

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. Double Taxing

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

    A fiduciary relationship in which one party, known as a trustor, ...
  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. 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. Bonds & Fixed Income

    Calculating Yield to Worst

    Yield to worst is the lowest possible yield on a bond that may be called in the future.
  4. Fundamental Analysis

    Explaining the Central Limit Theorem

    Central limit theorem is a fundamental concept in probability theory.
  5. Investing Basics

    What Happens in a Haircut?

    One meaning of haircut is the difference between prices at which a market maker can buy and sell a security.
  6. Investing Basics

    Explaining Delivery Versus Payment

    Delivery versus payment is a common procedure for settling the exchange of securities.
  7. Investing Basics

    What is Convertible Preferred Stock?

    Convertible preferred stock is preferred stock that can be converted into common stock as of a predetermined date at a specified ratio.
  8. Investing Basics

    What Does Clawback Mean?

    A clawback occurs when money or benefits that have been distributed are taken back because of unforeseen or unusual circumstances.
  9. Investing Basics

    What is the Theory of Backwardation?

    Backwardation occurs when the futures price of a commodity is lower than its market price today.
  10. Term

    What is Liquidity Risk?

    Liquidity risk is the risk of being unable to sell an asset fast enough to avoid loss.
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. What are the requirements for being a Public Limited Company?

    The requirements for an entity to be considered a public limited company (PLC) include registration requirements, establishing ... Read Full Answer >>
  6. Is there a difference between financial spread betting and arbitrage?

    Financial spread betting is a type of speculation that involves a highly leveraged derivative product, whereas arbitrage ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Depreciation

    1. A method of allocating the cost of a tangible asset over its useful life. Businesses depreciate long-term assets for both ...
  2. Recession

    A significant decline in activity across the economy, lasting longer than a few months. It is visible in industrial production, ...
  3. Bubble Theory

    A school of thought that believes that the prices of assets can temporarily rise far above their true values and that these ...
  4. Stock Market Crash

    A rapid and often unanticipated drop in stock prices. A stock market crash can be the result of major catastrophic events, ...
  5. Financial Crisis

    A situation in which the value of financial institutions or assets drops rapidly. A financial crisis is often associated ...
  6. Election Period

    The period of time during which an investor who owns an extendable or retractable bond must indicate to the issuer whether ...
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!