📈 Stocks & Equities · Lesson 9 of 9 · 8 min
Royalty Trusts — Money From the Ground
⛏️ Own a slice of an oil well or gold mine and get a check every time something's hauled out of the ground — without ever holding a shovel. The catch: the well eventually runs dry, and so does the check.
💡 Key idea
Royalty trusts pay you from resource extraction. High yield — but they DEPLETE over time.
🧠 Why it matters
A royalty trust is a stock-market-traded entity that owns the right to royalties from natural resources — oil, gas, minerals. As resources are extracted and sold, the income flows to you. They often pay very high yields, but there's a catch.
🌍 In the real world
⚠️ The catch with royalty trusts: the well runs dry eventually. A trust like Sabine Royalty (SBR) pays huge distributions, but each barrel pumped is one less left. Unlike a REIT that can buy more buildings, many royalty trusts slowly shrink. High yield, but understand it's partly your own capital coming back.
📌 Takeaways
- Royalty trusts pay income from oil/gas/mineral extraction
- Yields can be very high — sometimes 10%+
- Warning: resources DEPLETE — the trust can shrink over time
✅ Test yourself
What's the big risk unique to royalty trusts?
- They can't pay dividends
- The resource depletes — wells run dry
- They're illegal
- They never trade
Answer: B · The resource depletes — wells run dry
Unlike a REIT that buys more buildings, a royalty trust's oil or minerals run out. Part of that 'high yield' is really your capital returning to you.
Royalty trust income comes from...
- Renting apartments
- Extracting and selling natural resources
- Lending to businesses
- Software sales
Answer: B · Extracting and selling natural resources
Royalty trusts collect royalties as oil, gas, or minerals are pulled from the ground and sold. No extraction = no income.
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