Monthly Dividends, Escondido Retirement Trust, and more on “Drive Thru Retirement”

By Travis Johnson, Stock Gumshoe, April 22, 2008

Since writing about the “John and Helen Scott’s Drive Thru Retirement” teaser a few weeks ago I’ve heard from many folks that are interested in monthly dividend companies, so your Gumshoe thought he might poke around a bit and find some more for you. Who knows, maybe all the excitement is because it looks like they’re swinging out the ‘ol Escondido Retirement Trust teaser for this same company (we first sleuthed out O as the Escondido Retirement Trust way back in May of 2007).
If you happen to recall — and why would you, since I imagine you don’t share the Gumshoe’s obsession with advertising emails — this ad for a new monthly dividend research and advisory product from Stansberry & Associates also teased a few other monthly retirements aside from the (trade name registered) Monthly Dividend Company.

So, what might these other favorite monthly payers be?

We’ve got several to cover, so I’ll just jump right in … I’m running a bit short on preamble today.

The first one is teased thusly:

“Land royalties that pay 2,338%: In Dallas, a guy named Ron Harper runs a remarkable business. It has literally NO employees… but simply collects landowner royalties on oil and gas properties located in Florida, Louisiana, Mississippi, New Mexico, Oklahoma, and Texas.”

The ad also notes that this one has payed monthly dividends since 1988 without fail, and that both share price and dividends have risen dramatically in those ten years (2,000%+ each).

So … answers?

This one must be Sabine Royalty Trust, spake the Thinkolator. Trades as SBR on the NYSE.

SBR is one of several US-based royalty trusts for oil and gas — you may have heard of the other big ones, San Juan Basin, Cross Timbers, Dominion Black Warrior, Hugoton and BP Prudhoe Bay are a few that I can name off the top of my head, and there are others in the mining and energy sectors. Sabine does pay out monthly, and has done so at least since January 1988.

in case you’re not familiar with these trusts, they essentially are closed-end royalty trusts tied to specific oil and gas properties in the US — in Sabine’s case, they are indeed in those six states as teased. The Trust is generally formed to buy the properties from the operator, and the operator continues to do the production and charge a fee for that, then pay out to the trust whatever their contractual portion is of the proceeds.

This is a little bit similar to the Canadian Royalty Trusts, which I know many of you like, which also tend to pay out monthly and which are predominantly in the energy space as well — but there is a big difference (even beyond the contentious issue of tax treatment): Canadian trusts are open ended and tend to operate much more as operating production companies. Canadian trusts can expand and buy new land or rights or do extra drilling or otherwise manage their properties in specific ways, the US trusts are generally just passive owners of the royalty stream and sit back to accept whatever the operator provides.

This means, among other things, that the reserve life is of significant importance, because that’s all you’re really buying: the reserves in the ground, and the price that you believe the company will get for those reserves when extracted. Reserve life is the number of years that they can continue to produce at the current level, and once those reserves are gone the trust should more or less cease to exist. For Canadian trusts you’re also effectively buying into management’s ability to extend the reserve life by investing in future projects, but with US trusts you really don’t have a hypothetical upside like that, just the reserves that are there and the price those reserves will fetch.

That’s not all bad, by the way — it makes them much more stable, and they tend to trade up and down with the dividend. Payouts for Sabine are currently about 9%, which I think is on the high side of the historical trading range, but that’s probably either because the reserve life is predicted to tail off at some point or simply because people are betting that the current high royalties they’re earning might be at peak levels, with future payouts possibly coming down. I don’t know what the answer is, and I hope you’ll look into it before you buy shares — if that is, indeed, something you’re interested in. Remember, if you get paid a 9% annual dividend and the reserve starts tailing off in 8 years or oil prices drop dramatically, you may well not even get your initial investment back before the trust’s reserves go kaput.

Oh, and that “Ron Harper” bit? I assume this is just some clever copywriter trying to gum up the Gumshoe’s mighty Thinkolator … Avast, ye swabs! The administrator of the trust, and therefore that sole employee, is Ron Hooper. He also is administrator for several other trusts, including Dominion Black Warrier and Williams Coal Seam.

So, in my opinion these are the keys: Reserve life in years, and fluctuation of potential payments due to oil and gas prices, and the mix of reserves (how much is oil, how much gas). I haven’t read the company’s reports, but I would hope that these are things they would cover in their filings in some detail. If you feel like digging it up and sharing with the Happy Hordes of Gumshoedom, please feel free.

Moving on … another monthly payout champ, according to the Stansberry folk:

“Ditch digging that pays you 375%: A guy named Ted Winslow runs a business with operations in the U.S. and Canada. It’s incredibly simple and lucrative. What Winslow’s business does, in a nutshell, is dig ditches in hard-to-reach places (for new construction, utility lines, pipes, etc.) with something called a ‘hydrovac extractor.'”

This is a wacky little Canadian trust called Badger Income (BAD.UN in Toronto, or BADFF on the pink sheets in the U.S.), which is the income fund that owns the Badger excavation business. The Badger is a cool looking machine I’ve never seen before: A truck that essentially turns dirt to mud with pressurized water and then sucks it up with a super vacuum, thereby exposing pipelines or utility stuff or digging ditches without a backhoe or a team of underpaid minions.

Kind of cool, though I have no idea how the business prospects look, or why on earth they decided that the best corporate structure for them would be an income trust — they actually just started paying dividends about four years ago, so I suppose they were just part of the massive trust-conversion fad that took off in Canada at the turn of the century and ended abruptly with the introduction of the new tax law that will be punitive for most trusts starting in 2011. The share price is about $20 and they pay out about 10.5 cents a month in dividends, which they believe are mostly qualifying for US investors (they come primarily from corporate profits). So that’s a dividend of something like 6% or so — they started off with a much higher dividend right around the time of the trust conversion, or so it appears from a cursory glance at the data, but since that tailed off during their first 8 months or so the dividend has consistently gone up over the past four years.

And again, the smarty pants copywriters try to mess with the Gumshoe — the CEO’s name is actual Tor Wilson, which I guess is close enough to the teased “Ted Winslow” to claim some sort of typo in the event of complaints. Fool me once, shame on me, fool me twice … well, that makes me want to find out what the third one is.

Don’t know much else about this one, but it seems an odd choice for an income trust and I do wonder if they’ll keep that status after the tax law changes — might be worth a check, let us know if you dig into it any further. The shares are up quite nicely, they have traded mostly within shouting distance of $16 for the last two years, but are now over $20 after a big run up over the last few months.

Moving on!

The next one is an owner of assisted living facilities, teased thusly:

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“Assisted Living gains of 388%: In California, Andrew Dent started a business that owns senior assisted living homes. Again, it’s a little-known but lucrative field. Dent’s company started paying monthly dividends in March 2005. They haven’t missed a monthly payment since… and have returned 388% in the past five years… including $4,360 in dividends for every 1,000 shares owned.”

There are actually a pretty good number of healthcare-related REITs now, many of which own nursing homes or assisted living facilities (I wrote about a bunch of them when the “Healthcare IRA” or HIRA was teased), but those are in the main all very similar businesses and almost all of them yield a bit over 5%, paying quarterly. No this one is a little different, it is …

LTC Properties, Inc. (LTC)

And yes, it did switch over to the montly payout plan on March 2005, but had been a regular ‘ol quarterly dividend payer for many years before that. The yield is slightly higher than most in this sector, at 5.8%, but they’re also quite a bit smaller than the dominant players. Like most in this business, they pay out more in dividends than they report as actual earnings, but that’s not necessarily the best way to evaluate REITs that have big fixed assets — usually they’re value based on Funds From Operations (FFO) or cash flow, should you care to take a stab at comparing these guys to their peers.

The name’s a bit more of a stretch on this one — the CEO and founder is Andre Dimitraidis, which is a fair cry from Andrew Dent but is, I suppose, close enough … the other clues match, including the specific dividend (If you bought 1,000 shares right before they went to the monthly dividend payout schedule, you would have earned $4,360 in dividends through January of this year, when I suppose the copywriter must have compiled his numbers).

OK, even I’m getting a little tired of this … those three of you who are still paying attention would no doubt agree. But we’ve gotten this far, might as well dig up monthly dividend company number four:

“Rentals that pay 502%: A fellow named Mike Bilger runs a little-known company that provides equipment rental and other services for big oil companies like Conoco Phillips and Devon energy. Bilger’s company started paying a monthly dividend in January of 2004. Since then, they’ve sent a check to shareholders every single month. The total return for shareholders in that time has been a nice 502%… which includes 133% in dividends.”

Now, I’m afraid I must confess that the mighty Gumshoe can’t be absolutely certain about this one — there are several companies that have reasonably close matches to the clues.

Best guess? Cathedral Energy Services (CET.UN on the Toronto exchange, CEUNF on the pink sheets)

This is a small Canadian business trust that rents equipment and provides services for a broad range of oil and gas companies — directional drilling equipment, SAGD stuff for the oil sands, production testing equipment, stuff like that. Their yield is a bit under 6% at the curent distribution rate of 7 cents a share per month, with a unit price of just under $15.

Why is this my guess? Well, we get the initial match for the CEO, which seems to be our copywriter’s thing today — the CEO of Cathedral is Mark Bentsen. And they did begin paying monthly dividends in January of 2004 (they paid dividends for a couple years before that, though not monthly). Last year they paid out a bit more than they earned, which is not usually as OK if you’re not the owner of the actual assets, but it appears that might be because of the natural gas slowdown in Canada last year, and I expect that slowdown is over.

The big daddy in this space is Precision Drilling Services, if you want a comparable company that’s probably more stable and is traded on the NYSE, and there are also several other oil services trusts in Canada, including Trinidad Energy among many others, some quite teensy. I owned Precision Drilling for a while but sold on the tax news — wasn’t worth it to me, especially with an uncertain environment for land drilling rigs in North America last year, but I haven’t looked at them much since I sold.

So … those are the monthly dividend payers teased by Stansberry’s new service, if the Thinkolator is to be trusted. There are literally hundreds of securities that pay monthly dividends now (this number has exploded in the last five years as investors have focused on it, and as folks in the U.S. got familiar with the Canadian trusts). The vast majority of these relatively high yield instruments are closed end funds or Canadian trusts (most of which are actual oil and gas producers that move quite precisely with the price of their assets, now that the tax news has sunk in), but there are other unusual royalty trusts and monthly dividend payers in the U.S. and elsewhere. If you’ve got a favorite, feel free to share.



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farley 5
farley 5
April 23, 2008 9:55 am

Thanks again to StockGumshoe and the mighty Thinkolator. Too bad the copywriters have to blow everything out of proportion. Returns of 500% with no risk! Get them here, (for a subscription to our overpriced magazine).

S Karik
S Karik
April 23, 2008 11:26 am

What do you think about RYN,PCL,PCH,LFB,POPEZ?

April 23, 2008 11:28 am