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.

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“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.