They're arguably the most successful high-yield stocks to ever hit the market. I'd venture more fortunes have been made with these securities than just about any other income investment out there.
And thanks to the market's recent drop, I think they present a great opportunity for income investors right now. In fact, the last time I saw this sort of opportunity, I was up 80% on my investment in just six months. But before I get too far, I want to show you what some of these stocks can do over the long term...
Few investors have heard of BP Prudhoe Bay Trust (NYSE: BPT). It first went public back in 1989. Over the years, it's returned more than 6,400% -- including $103 per share in dividends.
But this wasn't some stock that you had to get in on early in its history to hit it big. In fact, if you put just $1,000 into the BPT back in 2002 -- 13 years after it first went public -- you'd have a total investment worth nearly $30,000 today... not to mention earning dividends worth more than $73 a share.
And this isn't some "one-off" opportunity that you had to be lucky to find. I've found trusts that have returned 200%, 215%, and 820% in the past decade, on the back of rising oil prices.
Put simply, royalty trusts like BPT own a stake in dozens -- if not hundreds -- of oil and natural gas wells. By owning the units (technically, they're not stocks, but trade the exact same), you get the cash from your stake in this production in the form of distributions. It's like owning your own oil derrick, and royalty trusts pay an average yield of 8.3%, with several paying double-digit yields.
You'd expect that opportunities to pick up royalty trusts at good prices would be next to impossible. After all, who doesn't want a stake in an oil field... especially when that stake throws off a yield of 10% or more?
But that's not the case right now. And I think investors could make a lot of money.
Since the start of the sell-off, the S&P has shed 7%... while oil has had it even worse, falling over 13% from its recent peak.
This drop has affected some securities more than others.
Because they are tied to oil and natural gas prices, you'd expect these trusts to fall some. But take a look at what's happened.
From their high, shares of BP Prudhoe Bay Trust are down 13% -- about the same as oil prices. But shares of SandRidge Permian Trust (NYSE: PER) are down 18% from their highs. SandRidge Mississippian Trust (NYSE: SDT) is down 19%. And Cross Timbers Royalty Trust (NYSE: CRT) is down 22%. This is despite their high yields.
If that disconnect seems like an opportunity, I think so too. But there's more. In addition to oil, many royalty trusts produce a lot of natural gas -- which is up 26% since late April.
Meanwhile, these trusts continue to pump out distributions, the size of which are found in few other places.
Let me be clear. There's no guarantee that you'll make money from this disconnect. But history is certainly on your side.
After the market dropped in October of last year, I saw an opportunity and added shares of SandRidge Mississippian Trust to my "real-money" portfolio for my premium Top 10 Stocks advisory after panicked investors dumped the shares.
Within months, my subscribers and I we were up over 80%.
Don't get me wrong. Royalty trusts aren't risk-free (nothing short of a savings account is). And as you've seen, they can be volatile as short-sighted investors sell in a panic.
But when opportunities like this appear, they usually don't last long... so if you plan to take advantage, I'd do it soon.
StreetAuthority Co-founder, Chief Investment Strategist -- Top Ten Stocks
P.S. -- For more opportunities that I've found, don't miss my latest presentation -- Top 10 Stocks for June 2012. One stock has raised its dividend 463% since 2004... another holds $9.00 per share in cash (54% of its share price)... another yields 8.0%. Visit this link to learn more about my Top 10 Stocks for June 2012 report.
Disclosure: StreetAuthority owns SDT and PER as part of Top 10 Stocks' $100,000 Portfolio. In accordance with company policies, StreetAuthority always provides readers with at least 48 hours advance notice before buying or selling any securities in any "real money" model portfolio. Members of our staff are restricted from buying or selling any securities for two weeks after being featured in our advisories or on our website, as monitored by our compliance officer.