An Interesting Way To Play Oil

As you empty your wallet each time that you pull up to the gas pump, there may be an alternative that can fatten your wallet instead. Put your money in a Canadian royalty trust, and you could be collecting annual dividends of as much as 20 percent!

What is a royalty trust, you may be asking? In Canada, a royalty trust is a publicly traded oil or gas production company that avoids corporate taxation by directing all of its taxable income to its investors.

A royalty trust operates like a regular corporation in that it buys and operates oil and gas wells and pays its investors a percentage of all sales of oil extracted from its lands. Thus the higher the price of oil, the greater the revenue, which results in more money ending up in the investors' pockets.

For U.S. investors in a Canadian royalty trust, payouts qualify for the 15 percent dividend rate. However, there is one pitfall to bear in mind: if energy prices should suddenly drop, the dividends could plummet as well.

If you are interested in looking further into this interesting investment area, here are a few suggestions for starters:

BP Prudhoe Bay Royalty Trust (BPT)
Enerplus Resources Fund (ERF)
ARC Energy Trust
Focus Energy Trust
Penn West Energy Trust

You may not recognize any of these names at this time, but investing in any one of them just might enable you to enjoy a regal retirement!

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