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Strategies & Market Trends : Screening for Stocks

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To: Justinfo who wrote (59)2/19/2014 10:46:32 AM
From: B.K.Myers1 Recommendation

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Justinfo

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What metrics do you look at when you pick trusts?

I started looking at Trusts when I was looking for high yielding investments. I don't think that there are any specific metrics that you can look at to evaluate a Trust but for Real Estate Invest Trust you can start with net asset value (NAV), funds from operations (FFO), and adjusted funds from operations (AFFO).

It is much more important to understand the specific trust. For example, BPT is a royalty trust that pays a dividend based on the number of barrels of oil produced by BP Exploration in Prudhoe Bay Alaska. At some point in time that oil field will go dry and the Trust will cease to exist.

Real Estate Investment trusts are similar and pay dividends based on rent received from properties owned by the Trust. So it is important to know what properties the trust owns. A trust that own senior living properties probably has a brighter future than a trust that owns shopping malls. You just have to look a what each REIT owns.

Real Estate Investment Trust:

en.wikipedia.org

A real estate investment trust (REIT) /'ri?t/ is a company that owns, and in most cases, operates income-producing real estate. REITs own many types of commercial real estate, ranging from office and apartment buildings to warehouses, hospitals, shopping centers, hotels and even timberlands. Some REITs also engage in financing real estate. The REIT structure was designed to provide a real estate investment structure similar to the structure mutual funds provide for investment in stocks.

REITs can be publicly or privately held. Public REITs may be listed on public stock exchanges.

REITs can be classified as equity, mortgage, or a hybrid.

The key statistics to examine in a REIT are net asset value (NAV), funds from operations (FFO), and adjusted funds from operations (AFFO). In the period from 2008 to 2011, REITs faced challenges from both a slowing United States economy and the late-2000s financial crisis, which depressed share values by 40 to 70 percent in some cases

Royalty Trust:

en.wikipedia.org

A royalty trust is a type of corporation, mostly in the United States or Canada, usually involved in oil and gas production or mining. However, unlike most corporations, its profits are not taxed at the corporate level provided a certain high percentage (e.g. 90%) of profits are distributed to shareholders as dividends. The dividends are then taxed as personal income. This system, similar to real estate investment trusts, effectively avoids the double taxation of corporate income.

Royalty trusts typically own oil or natural gas wells, the mineral rights of wells, or mineral rights on other types of properties. An outside company must perform the actual operation of the oil or gas field, or mine, and the trust itself, in the United States, may have no employees. Shares of the trust generally trade on the public stock markets, but the trust itself is typically overseen by a trust officer in a bank.

They are a powerful investment tool for people who wish to invest directly in extraction of petroleum or mining of other materials, but who do not have the resources or risk tolerance to buy their own well or mine. Additionally, since trusts often own numerous individual wells, oil fields, or mines, they represent a convenient way for the average investor to diversify investments across a number of properties. Also, since commodities are considered a hedge against inflation, the popularity of royalty trusts as investments rises as interest rates rise, and their shares often rise as a result.

These trusts often attract investors with their relatively high yields; in 2007, their distributions were often in the 10 to 15 percent annual range. This makes the shares sensitive to interest rates, as share prices are likely to decline in periods of rising interest rates, and to rise when interest rates fall. Additionally, royalty trusts in the United States and Canada usually involve oil and gas fields or mines which are at or past their production peak, and will gradually decline in output as well as revenue; however, the infrastructure to develop them has already been built, so that an investor can expect a reasonably steady income stream.

In addition to allowing investors to achieve high distribution returns, especially during periods of low interest rates, royalty trusts allow investors to speculate directly on commodities such as gas, oil, or iron ore without having to buy futures contracts, or use the other investment vehicles traditionally associated with commodities—since the trusts trade like stocks. During times when a commodity price is rising, the share value as well as the dividend return of a trust engaging in production of that commodity will rise as well.

B.K.
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