Last month, my colleague Dr. David Eifrig presented a “radical” approach to collecting investment income.
His income approach is brilliant because it allows the investor to collect a huge amount of income, even if stocks the investor is involved in simply move sideways.
This is also the key to one of my favorite ways to earn income from natural resource deposits… one I introduced last year in DailyWealth. If you took advantage of this idea, you’ve made a lot of money… and I expect you will continue to do so.[ad#Google Adsense 336×280-IA]The idea is buying what is likely the world’s most hated commodity: natural gas.
Natural gas is the clean cousin of crude oil. We use it to fire electrical plants, produce chemicals and fertilizers, and heat homes and factories. Most investors can’t stand the thought of investing in natural gas because there’s a giant, technology-driven production boom going on right now.
Bears will cite this massive new supply and say there’s no way to make money in gas. They’re partly right: The supply surge has crushed the price of natural gas. It’s down from $14 per mcf (thousand cubic feet) in 2008 to less than $4 now:
However, by owning a special type of company, my readers are enjoying income payments in the 5%-8% range in natural gas and crude oil.
On March 31, 2010, I told readers how to put on a natty trade. That essay was all about these companies, called “royalty trusts.”
Royalty trusts aren’t conventional oil and gas companies. They are essentially “boring” chunks of land that trade on the stock market. The operators of these trusts simply extract oil and gas from the land and send their shareholders income checks.
Even though natural gas prices are depressed right now, many trusts have such low production costs, they are still able to pay out fat distributions.
On March 31, 2010, the shares of one of my favorite trusts, San Juan Basin, traded for $20.84. Today, its shares trade for $24.79 each. That’s a capital gain of 19%. (Modest, but still ahead of the market’s 7.5% return.) But the company also paid us $2.38 in dividends. So our total return on our San Juan Trust investment is actually 30%.
What’s even more amazing is that San Juan’s “boring” business allowed its share price to hold like a rock this fall while other commodity stocks (like copper miner Freeport-McMoRan and oil sands miner Suncor) were hammered:
Keep in mind: San Juan Basin’s steady paychecks and extraordinary price strength have come in a depressed price environment for natural gas. Prices have collapsed and are essentially moving sideways right now.
Despite all this, the trust is still an excellent income vehicle. You get paid even if gas goes sideways or a bit lower (which is what I expect over the next year). It’s a “radical” approach to investing… But it works.
As I write, San Juan isn’t quite cheap enough for a new buyer to take a position… But this company and its fellow trusts are worth following. Should a selloff in these companies occur, it will be a chance to get in… and start earning big distributions.
— Matt Badiali[ad#jack p.s.]
Source: Daily Wealth