What is the “Super-Secret ‘Mainz’ Income Stream?”

By Travis Johnson, Stock Gumshoe, September 29, 2010

[The “Mainz” Teaser Term has been used several times, click here for the most recent articles]

Today it’s finally time to get around to what has probably been the most-requested teaser ad of the last few weeks — if you haven’t seen it, it comes in under several different headlines all comparing this “Mainz” income stream to the thousands raked in by Bill Clinton, Barack Obama, and teases us that we can also get a piece of what is “one of the great low-risk ways to get rich in America.”

So I can see why so many folks are asking. I, too, would like to get rich with low-risk. Preferably, I’d also like to start with very little money (Oh, wait, I’ve got that part covered!)

How do they get our attention and try to convince us to subscribe to Matt Badiali’s S&A Resource Report? Here’s a taste:

“The $84,550/Month Super-Secret ‘Mainz’ INCOME STREAM of Ex-President Bill Clinton

“Did you know former U.S. President Bill Clinton collects more than $84,550 PER MONTH in personal income… all thanks to one super-secret income stream!

“And here’s the best part…

“Regular Americans are now cashing in on this secret as well…”

I’ll spare you some of the foofaraw that chews up a few pages in this teaser ad (or 10 minutes of your life, if you’re actually watching the video version of the ad — something I never have the patience to do), but Badiali apparently uses this “Mainz” term because Mainz, Germany was the birthplace of modern printing (Gutenberg’s movable type, etc.). That modern printing technique enabled, for the first time, mass production of intellectual and creative work … which made it possible to make money by creating that work in the form of … royalties.

Yes, this is all just a big spiel to sell you on the idea that royalties are a nice way to get rich (don’t worry, there are some specific investments too — more on that in a moment). Of course, most of us are not going to get rich in quite the way Bill Clinton did, by writing a popular memoir and collecting a monthly payout for the royalties on the book, but investors certainly do invest in royalty streams even if they didn’t create the original work — one of the few financially sensible things Michael Jackson did was buy the Beatles catalog, after all, and he earned the income from those hugely popular songs for years.

And more importantly, there are also several publicly traded entities that generate royalties — Badiali gives examples of a few of the esoteric ones in his ad that he’s not specifically recommending, like the one that gets royalties from use of the A&W Root Beer name (that’s actually a Canadian income fund, trades at AW in Toronto and AWRRF on the pink sheets) and the one that gets royalties from a 25,000 song catalog including standards like “Little Drummer Boy” (that’s the Mills Music Trust, ticker is MMTRS over the counter but it almost never trades, has a trailing yield of about 8.5%).

But those who recognize the name probably know that Matt Badiali is a resource investor, so it will not surprise you to hear that the “Mainz” income streams he’s actually recommending generate their royalties from oil and gas — and thankfully, he provides a few clues about which of these investments he likes.

He first tells us that owning royalty interests is better than ordinary oil and gas stocks because the potential returns are bigger (he gives an example of one royalty company that was 500X more profitable than ExxonMobil stock over the past dozen or so years); and the investment is safer (royalty companies don’t generally take on the risky exploration or production, they just own royalties and sit back to collect their money if the project pans out).

Plus, of course, there’s that lovely income bit, which clearly appeals to lots of investors — he tells us that if we buy the four investments in his special report, which he calls Oil and Gas Royalties: The Real Secret to Generating Huge Returns in America’s Petroleum Market, that we’ll be getting royalty checks, on average, once every nine days.

So which four investments is he recommending? Well, you can ask him if you want, and he’ll tell you if you sign up for a subscription to his newsletter … or you can read on as we check out the clues and feed ’em into the mighty, mighty Thinkolator to see which companies these are.

Ready? Number one …

“New oil & gas royalty stream NOW ONLINE

“As I’ve shown, the absolute best time to get in on these royalty interests is at the beginning…

“And, not too long ago, a new royalty interest went public on the New York Stock Exchange…

“Since going public, this investment is up 219%. But as we’ve seen with other royalty interests… these gains are just the very tip of the iceberg.

“This income stream enables you to collect royalties from more than 3 MILLION acres of oil and gas rich land in 25 states, including: The Williston Basin of North Dakota and Montana, the Marcellus Shale region of Pennsylvania and New York, the Barnett Shale region of Texas, and the Fayetteville Shale of Arkansas.

“Not to mention, dozens of other oil and gas-rich properties in Oklahoma, Colorado, Louisiana, New Mexico, and Utah just to name a few.

“In fact, since going public in 2003, this investment has outperformed all major U.S. oil and gas stocks like Exxon, Chevron, Shell, and ConocoPhilips”

Well, this is a bit of an oddity — the match is not exactly perfect, but from those clues it sounds to me like Badiali must here be teasing a stock I own as well, Dorchester Minerals. Dorchester is a press-shy Master Limited Partnership (MLP) that owns mineral rights on over three million acres in 25 states, and yes, they do have acreage in those key areas — Williston/Bakken, Marcellus, Barnett, Fayetteville, etc. The share price is not up 219% since they were created in 2003, but you can probably get to that number if you reinvest the distributions — DMLPs distribution policy is to essentially pay out as much as they can of their incoming revenue, so like most MLPs they pay out far more than their “earnings” and much of it is classified as “return of capital” and just reduces your tax basis (meaning it’s effectively tax-deferred). Unlike the “real” depleting trusts, DMLP has some flexibility and can reinvest or acquire new assets.

As I said it’s not a perfect match — they have not grown their ol reserves 43% over the last four years, nor have they grown the gas reserves 500% over that time period … like most royalty and trust-based investments, DMLP earns income from wasting assets, meaning that they’re essentially turning reserves into cash, they’re focused more on maintaining and replenishing reserves (as a way to keep the cash flow coming in the future) than on growing them. Their overall reserves are down slightly for the life of the company, though they’ve replaced about 2/3 of what they’ve depleted, and the reserve level is probably down 10% or so from where it was in 2005. Still, they do have some divisions that have booked big reserves growth — their Net Profits Interest properties have booked something like 500% reserve growth over five years and those are mostly in gas, but that’s just a portion of their assets. So I could be wrong on this, but I’m unaware of any royalty-based companies that went public in 2003 and have this kind of footprint.

As I said, I own Dorchester shares (units, really) and I also profiled them this month for the Irregulars (before I bought them — this is a recent purchase), so if you want to see a more exhaustive look at the stock you can check that out here if you’re a paying member of the site. I like the decent royalty pass-through income (yield around 6%), but I also think there’s more room for growth than investors seem to appreciate.

If you think I’m wrong about this one, I’m listening. But in the meantime, there are three more:

“Royalty Stream #2

“This income stream enables you to collect royalties from more than 3,950 natural gas wells in the San Juan Basin of New Mexico (one of the largest and most productive gas fields in the country). If you’d put $10,000 into this opportunity ten years ago, you’d be sitting on more than $205,000 today. So far, this royalty stream has mailed 273 consecutive oil checks to shareholders. Even if they never acquire another cubic foot of natural gas … they have enough reserves to keep sending you royalty checks until 2020!”

Well, you won’t be surprised at this name: This must be San Juan Basin Royalty Trust (SJT), which owns a 75% royalty on net income (almost all from natural gas) from the wells (almost all operated by ConocoPhilips) in that basin. And yes, they have said that “conservative estimates” indicate at least another 10-15 years of life for the trust (meaning, there’s a least enough profitable reserves left to produce in the basin). SJT is a grantor trust, like most US energy trusts, so they can’t do anything — they just collect the money.

If there are more wells drilled on their parcels that produce more gas then their income goes up, and new reserves can be booked on their existing holdings, but the trust itself can’t invest in new royalties, buy new land, or anything like that they take expenses off the top and maintain a small reserve but otherwise just send whatever cash comes in out to unitholders as a monthly dividend (taxable as income, though the taxes can be a bit trickier than a standard stock when you account for return of capital and/or depletion allowances … still might be easier than MLP K-1 tax forms, I haven’t ever owned one of these and I’m not sure).

But we’ve got a couple more to find — what are they?

“Royalty Stream #3

“This royalty stream enables you to collect royalties from the Hugoton field of Kansas, the San Juan Basin field of New Mexico and Colorado, and the Yellow Creek field of Wyoming. That’s more than 140,000 acres of oil-rich property (and more than 1,700 wells). So far, this royalty stream has mailed 272 consecutive oil checks to shareholders. A $10,000 investment 22 years ago would be worth more than $75,000 today.”

I think this one must be the tiny Mesa Royalty Trust (MTR), which is indeed in the Hugoton Field, the San Juan basin, and the Yellow Creek Field — most of their income comes from the San Juan Basin, just FYI, and like most royalty trusts they calculate your distribution amount monthly.

And one more …

“Royalty Stream #4

“This royalty stream enables you to collect lucrative gas royalties from more than 1,600 wells in one of the largest domestic natural gas producing areas in America. This unique investment hasn’t missed a monthly royalty payout since it began 11 years ago. That’s 136 consecutive payouts. A $10,000 investment back then would be worth more than $54,000.”

I think this one must be Hugoton Royalty Trust (HGT), which owns the net profit interest royalties of some XTO (now ExxonMobil) producing gas fields, mostly in the Hugoton Field but also elsewhere. They did go public in 1999, and XTO distributed the shares they had held in 2006.

Most of these trusts are fairly similar, with the distinctions generally coming in the fields they own properties on and the level of proven reserves, and the expected remaining life in those reserves. Most of them are also valued more or less similarly, with almost all of these trusts owned predominantly by individual investors who buy and sell based largely on the yield, with assumptions about future natural gas prices (most trusts hold royalties predominantly on gas properties) and the depletion rate for those royalties (which often, from what I can tell, ranges from 3-7%).

The yield for most of these trusts is currently in the 6% range (Hugoton’s trailing yield is a bit higher, around 8% — which would tell you, probably, that investors think the profitable life of that trust will be shorter, or they’re likely to distribute less in the future than they did in the past), and as with other income-producing investments they compete for investor attention with bonds, REITs, MLPs and other high-dividend investments, so if bond yields go up dramatically, for example, the yield on these trusts would likely have to rise as well, which, absent increases in the distribution from higher gas prices or higher production, would mean that the unit price would have to drop.

As always with any depleting trust, do be careful about reinvesting your distributions — it can work extremely well to compound your returns and I almost always do so for my income-producing investments, but depleting trusts are different: if the reserves are depleting too fast and the life of the trust starts to shorten, investors will drive the share price down to make sure the yield gets them a good overall return for the expected life of the trust (to simplify: for example, if the trust says they have five years of expected production left you’d be crazy to buy shares with a 10% yield — that means you’re planning to invest $10 and get only $5 back in five years, you’d want at least a 20% yield to make sure you get at least your original investment back … all else being equal, which it rarely is). Every investor has to make that decision for themselves, just something to be aware of as you calculate your version of the future. Higher yield almost always means shorter expected life (or some trust-specific negative, things like a weaker producer or rising costs, for example).

The life of the trust can always expand if new production is identified on land where they own a royalty interest, or if prices go higher, it’s just that they can’t go out and buy a new property next door to keep the money flowing. Trusts are created with the idea that they will eventually expire, though they can certainly continue producing for far longer than the initial reserves would have predicted, since more discoveries, new extraction technologies, or higher prices that make more extraction profitable can all increase reserves. One publicly traded trust has decided to euthanize itself and distribute the proceeds to unitholders (That’s Torch Energy Royalty (TRU), I don’t know the story of this one but shareholders made the call to disband almost three years ago — they’re apparently still paying distributions as they liquidate the trust).

And likewise, do note that trusts and royalty owners generally have very little power over their property — they collect what is produced, but they don’t usually get a say in how much to produce, and they can take a big hit if wells are shut in because of bad performance, or because oil or gas prices fall too much to make the wells profitable for the operator. Trusts generally are formed for stable, producing assets, as most of these are to the best of my knowledge (which varies greatly), but be careful about assuming any “guarantee” about the level of future production — or about future energy prices.

If you’d like to learn more about trusts or about a few of the newer ones, there was a good article this month in Oil & Gas Financial Journal about trusts, including the more recent ones to come public and about the general appeal of them for energy producers (they can monetize some of their reserves and continue to operate the wells, and get money to expand without diluting shareholders directly or borrowing). If you want to know about all the US-listed royalty trusts, (one of which is actually a holder of royalties on oil and gas production in Germany, but almost all others are US-only production) tickerspy maintains an “index” of them here.

Full disclosure: In case you didn’t notice above, I do own units of Dorchester Minerals. I do not own any other stock/trust mentioned, nor have I yet written a bestseller to generate my own “Mainz” royalties … and I will not trade in any of the above investments for at least three days.

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Share Your Thoughts

ShowHide Comments (51)
    1. Tobias S.
      Sep 29 2010, 01:13:43 pm

      Thanks for this post. I have been really curious about this one.As you have said once you read " Matt Badiali" you know that we are dealing with natural resources. Btw am I the only one really annoyed with those teasing videos? Do people prefer the to the old letters.?

      • chuck steaks
        May 24 2013, 06:16:24 pm

        before u peoples do anything about this, u ned to go to non-participating royalties association, and read wat they hav to say about this shit. there is such a organization nown as the mineral rights forum,royality interests, and the definition of royalities as it is defind by investapedia. go there firss. cuz the rtest of these guys r onlies out 4 u r monies. dun git stupit!

    2. Allen
      Sep 29 2010, 01:42:21 pm

      If you want to know about the content of the teaser without watching the video, just hit the "close window" button as the video is loading. A pop-up will say "WAIT! Are you sure?" Then, if you hit the cancel button, the video will go away, and you'll see the letter.

    3. learnedthehardway
      Sep 29 2010, 04:19:40 pm

      Good suggestions all, but an even better approach is to just not click on the comeon when it says 'video'. I've also emailed customer service and told them how offensive it is to have a 'video' that is just a voice reading the words on the screen – as if none of us could read! The best approach, you will learn over time, is to just stick with the newsletters you like and avoid the new 'opportunities' that never are.

    4. Jill
      Sep 30 2010, 05:05:53 am

      The first $1000 of income does not need to be claimed, however, if you hold MLPs in your IRA or 401K and the disbursements go over the $1000, then the administrator of the IRA/401K must sell enough securities to generate enough cash to pay for the taxes.

    5. Herach
      Sep 30 2010, 07:43:42 am

      I just learned of a new ETF AMLP that is suited for IRAs. Not certain why, but the ETF is treated differently than individual MLPs.Brand new so no earnings or dividend info as yet. I may replace my Can Trusts before 2011 and the new laws regarding energy trusts go into effect. Bears watching. Again, the Obama folks may decide to change the status of MLPs to increase taxes.

    6. Dr. Diane
      Sep 30 2010, 10:00:17 am

      While you rarely read about it, I have heard that there is another tax issue with regard to MLPs which made me decide to stay clear of them. I read that you must pay state income tax in every state in which the MLP operates–if that state has an income tax. This could become a true nightmare. I can envision myself sitting in prison for evading taxes–somewhere. Could someone who actually has owned enough of these to generate more than the exempt amount please comment on this? I have been reading about these for ages now, and even took a newsletter dedicated to MLPs, and this was never mentioned. I saw it in one place only. Oh, by the way, not all authors get royalty checks–never mind huge ones. I am still having royalties from my book sales going to pay off a small advance–over one year after the book was released. And my book was designated one of the "Best Books of 2009" by the "Library Journal," too. That's why I appreciate this site–I must make my portfolio work harder for me because books sales aren't going to be my path to much of an income stream, I fear.

    7. Pipick
      Oct 6 2010, 05:08:19 am

      See comment and reply to Dr. Diane above. Let's forget about IRA's for now. In a regular brokerage account – do you really have to file a tax return in states that pay royalties to its stock holders ???
      That could be a prize pain. Is the $ 1000. of royalties exempt in a regular ( not IRA ) account ? Can anyone set me straight on this ?? I am impressed by the writeup, and was ready to plunk down my chips on Dorchestor until Dr. Diane ruint my day.

      • kaylee
        Oct 19 2013, 11:57:31 am

        Yes you DO have to file a state tax return on royalities, as that is where the income/royalty is earned. I have a Fl. client who owns Stone Engergy in La and I have to file La taxes for her. Stone over the years has given them HUGE royalties, but I do not know what the original investment was, Stone is on it’s way down, royalties are getting less and less each year. But this could be good if you stick with one state, or find one that is in a state with no income tax.

    8. SPC
      Oct 6 2010, 11:58:51 am

      Repeat after me:

      There is No Free Lunch;
      Anything Free HAS to be Paid For by Somebody, somewhere;
      if it seems too good to be true it most likely is.

    9. Philip
      Jan 15 2011, 04:14:06 pm

      God bless you. You save me so much money with your information on the b.s. newsletters, etc. I will always be a subscriber to your no b.s. service!!!

      • chuck steaks
        May 24 2013, 06:22:11 pm

        the income stream is there if u hav the monies to do it with? 100k minimum? nuthin said about max/min. so go to investapedia for mor info. thisa royality is alot of crap. big bucks to git r dun. no 1 talks about the tax problums that cum wid it. look real hard about this and it will make u r eyes bleed. l.o.l. anuder daytrader.

    10. gail
      Feb 9 2011, 03:59:23 pm

      Update: We have contacted Hivision for their comments on the news and are awaiting a response from them.

      We are also hearing that HCL, which was reportedly awarded contract for manufacturing the tablet, is actually only responsible for setting up infrastructure for testing the tablet.

      Inspiration: Jaimon Joseph

    11. Guerra Eugene Guerra Eugene
      Sep 12 2012, 01:40:32 am

      It Is No Secret “Mainz” INCOME STREAM is Rip off August 15, [ 2012 · by Anon · in Business It is no secret I am leery about this tease from Matt Badiali from the Stansberry stable that yell about Obama’s tax returns. The Schedule “C” reporting income on Federal 1040 is business income, with a reduction of allowable business linked deductions. Instead it is net income from sales of books. Royalty income is usually reported on Schedule “E” Federal Form 1040, in view of that: the tease “Super secret Mainz INCOME STREAM” is a total misrepresentation of truth. Badiali has shown proof of testimonials and testify instances of people getting paid a monthly stream of income. Then he talks about three gold companies where an investor can receive a royalty stream, but only when an investor sells, just owning them is not going to create any income for you. More so, why the heck is he trying to sell his one-year trial subscription to The S&A Resource Report for $39 when, he can make many times more by following his own investment prophecy? Royalties on book sales and royalties on mineral rights are the same, and of course, misleading, you are not supposed to look behind the curtain, with such teasers. Submitted by Anon http://upsetreviews.com/2012/08/misnomer-is-super-secret-mainz-income-stream-of-obama/ ]
      Expert answered|bongche|Points 3035|


    12. BloughMee
      Sep 15 2012, 11:21:19 pm

      You don’t need a newsletter or anything else to invest in Gold/Silver royalties. It’s just not that great an investment or everyone would be flocking to them. I greatly dislike these BS sales pitches that force you to sit through half an hour of misleading nonsense just to get to a newsletter offer. Gimme a break. Furthermore – this guy is buying national late-night radio time, he’s gotta sell a LOT Of $39/yr newsletters to break even (I used to be in the newsletter business). #EPIC FAIL

    13. concerned
      Dec 18 2013, 01:07:48 am

      Please people, before you just focus on greed and continue investing in this type of thing, please at least educate yourselves on what these oil and gas companies are doing to the earth and the people who live near these wells. I own land that the mineral rights were leased out on (before I owned it), and at first it really didn’t seem to make a difference to me. I had no idea what it really meant. But after watching what happens when they put exploratory wells on the land (thankfully not ours, but many of our neighbors), I am horrified! It destroys the water, the land, and impacts the health of those living near them.

      If you want to understand what you are actually investing in, check out the documentary “Gasland”. Google search it. I think you can even watch it on YouTube. From my personal experience, it is quite accurate. As much as I want to make money as an investor, I also want to leave a better life for our children. The oil and gas industry doesn’t give a crap if they poison all the water and give everyone cancer. It’s pretty frightening once you learn about the facts of what happens. Imagine being able to light your drinking water on fire…from the faucet. It’s not magic.

      I’m sure some of you could care less, . That’s fine. But hopefully a few of you will at least get a little more educated on the reality of this drilling. If learning about it in more detail impacts you like it impacted me, hopefully we can invest in something that doesn’t destroy our water, land and air quality.

    14. richard friedman
      Jan 5 2014, 11:44:04 pm

      One of the testimonials in the video comes from a purchaser living in Tavares, Texas. Problem is, there is no city by that name in Texas. The city is located in Florida. This is one sloppy fraud. Nor does the purchaser live in that Florida city either.

    15. Jeb
      Jan 30 2014, 02:18:44 pm

      Example: (HRT) $8.66 per unit, one unit paid back .07 cents per month, .86 per year it will take ten years to double your greenbacks. Good luck with this stuff.

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