Recently, Canada’s largest natural gas producer EnCana (ECA) highlighted one of the most ignored ways to profit from the energy sector; ECA announced that they will place around 5.2 million acres worth of oil and gas reserves/wells in Alberta, Canada into a new subsidy called PrairieSky Royalty. EnCana will sell shares of the firm in order to raise some much needed cash. PrairieSky should IPO by mid-June. The key for ECA and, ultimately for investors, is that the new shares will actually be a royalty trust.

Often overlooked, royalty trusts offer income seekers a chance to get some pretty high dividends. So what exactly are royalty trusts, and do they below in your portfolio? For the owners of the royal trust units, they are treated to some hefty dividends. Like master limited partnerships (MLPs) and real estate investment Trusts (REITs), royalty trusts are designed as “pass-through entities” that get preferential tax treatment because of their business model. As such, they kick-back virtually all of what they earn in the form of distributions to shareholders. And because of that fact, these investment vehicles often yield in excess of 7%. Three Top Royalty Trusts: BP Prudhoe Bay Royalty Trust (BPT), San Juan Basin Royalty Trust (SJT) and VOC Energy Trust (VOC).

Source: InvestorPlace

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