The MLP…
OK, so Vanguard Natural Resources, LLC (NYSE:VNR) is technically a LLC, but the company chooses to be taxed as a master limited partnership— or MLP. According to the company, they:
“are a publicly traded partnership focused on the acquisition, development and exploitation of mature long-lived oil and natural gas properties in the United States. Our properties are located in the Permian Basin in West Texas and New Mexico, the Big Horn Basin in Wyoming and Montana, the Arkoma Basin in Arkansas and Oklahoma, the Williston Basin in North Dakota and Montana, Mississippi, and South Texas.”
Vanguard Natural Resources has also recently decided to begin distributing payouts on a monthly basis– and currently yields around 8.80%. The company might make a good play for those who believe that natural gas is currently bottoming because the company seems to be shifting more towards it as the price of natural gas has fallen near historical ten year lows.
The REIT…
Realty Income Corp (NYSE:O) is a real estate investment trust, or REIT, under the Internal Revenue Code and is required to pay out 90% of its taxable income to its shareholders. Realty Income Corporation engages in the acquisition and ownership of commercial retail real estate properties in the United States. The company leases its retail properties primarily to regional and national retail chain store operators. As of December 31, 2006, it owned 1,955 retail properties located in 48 states, covering approximately 16.7 million square feet of leasable space. The company also held a portfolio of 60 properties through its wholly owned subsidiary, Crest Net Lease, Inc. (Crest), as of the above date. The company distributes dividends monthly, and currently yields almost 5%.
And finally, the royalty trust…
San Juan Basin Royalty Trust (NYSE:SJT) operates as an express trust. The company has a 75% net overriding royalty interest carved out of Burlington Resources Oil & Gas Company LP’s oil and gas leasehold interests (the underlying properties) located in the San Juan Basin in northwestern New Mexico. The underlying properties consist of working interests, royalty interests, overriding royalty interests, and other contractual rights in 119,000 net producing acres in San Juan, Rio Arriba, and Sandoval Counties of northwestern New Mexico, as well as 1,180.5 net wells. Compass Bank serves as the trustee of the San Juan Basin Royalty Trust. The company was founded in 1980 and is based in Fort Worth, Texas.
The company is another good play for those who think natural gas is headed higher, especially since it is a royalty trust. As a royalty trust, there is no CEO or board, and although it is traded on the market like a stock, it is technically a “unit of interest” and the dividends are thus “royalty income”– which is taxed at marginal rates. Being almost directly tied to the commodity it holds interest in, San Juan Basin is more of a financing vehicle that was designed as a way to distribute and pass on profits to unitholders. The company currently yields around 3.5% and pays out monthly.
Conclusion
The above mentioned “stocks” or “units” may be riskier than the traditional high-yielding blue-chip, and can also lead to more complex taxes (as things such as MLPs and royalty trusts are taxed differently than a traditional stock); but they also provide high yield that is paid out monthly. While they can provide a good stream of income, these payments can also swing and fluctuate dramatically. The biggest culprit of this in the group is San Juan Basin, where Vanguard Natural Resources and Realty Income Corp (NYSE:O). seem to have more stable (and even increasing) payouts.
If an investor is reinvesting distributions, these “stocks” or “units” can be risky. They do, however, have the potential to compound significantly quicker than a stock that pays out dividends quarterly. Just take into account the added tax complications and/or risk, especially with reality trusts– whose payouts are determined exclusively by the price of the commodity they are tied to. All three companies in their varied forms can make great candidates for those who are a little more risk-tolerant than the average conservative investor and are searching for faster-than-normal compounding yield.
All financial data and company profiles obtained from Yahoo Finance
The article Quarterly Dividends Are Nice, But These 3 Investments Will Pay You Monthly originally appeared on Fool.com and is written by Joseph Harry.
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