Hi Jay, a bunch of folks had written you concerning issues with the gas/oil royalty trusts, and they were mostly common issues, and I figure thus:
I will:
(a) slowly add to my knowledge about these beasts,
(b) cautiously add to my existing stakes,
... because I like them, their simplicity, their underlying commodity price trends, and, god, their awsome yield (still high after striping out the return of capital portion of distributions).
I figure they may be mis-priced for a variety of reasons. My initial sense is that the royalty trusts are mispriced because they have:
(a) no institutional following,
(b) no global believers,
(c) bad reputation with locals, and
(d) that commodities as a class of assets are not popular with the retail mob, yet.
In other words, 'the heavy duty high octane money is not powering the engine, and the street mob is not yet in a frenzied mode'.
Other considerations:
<<... potential legal liability of shareholders ... eco-disaster>>
... I was aware of the liability and the changes proposed. I can only lose what I put up, and not a cent more, just as if I bought Enron;0)
<<higher dividend ones tend to fluctuate more, as you might expect>>
... the lower dividend payout ones are still paying an respectable yield, and should be valued as such.
<<they are ultimately sinking funds and have to replenish assets>>
... regular operating companies need to do same in the case of mines, and need to do R&D and marketing in the case of Coke and Pfizer.
<<6-12 years of production life at any one time. Oddly enough, if gas prices stay high this is a bigger problem than if prices cycle up and down>>
... yes, but the call option on gas reserve revaluation implicit in the construct is worth something.
However, all of the above four factors are subject to change and impending attitude adjustment.
Chugs, Jay |
