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The Company's business is to collect the income attributable to the Royalties, to pay all expenses and charges of the Trust, and then distribute the remaining available income to the Unit holders.
The price of oil is likely to remain high. Permian Basin oil is a relatively steady income from a reliable field. The nearly 10% return is nice and buffers volatility. Longevity of reserves is a long term concern. PBT is one of the few energy royalty trusts that is primarily oil based and not Canadian, where tax issues for US investors are problematic.
The most recent report (released April 2008) estimates life of the reserves at 8-9 years.
If life is 8-9 years then 10% is not enough yield assuming steady oil prices - you won't even get your initial capital back before the wells run dry. Prices would have to go a lot higher than today to make this investment work over the whole period.
...meaning that you won't even get your initial capital back if you hold for 8-9 years and oil prices remain at 130-140 per barrel. Investors are counting on even higher oil prices. A decent return would require $200 oil.
What about those of us that are investing for the dividends/income generated by a stock and use that to supplement living expenses.
The point from Bluedome is that dividends based on a reliable, continuous reliable income stream are a very good investing option for people needing income. Key words are "continuous, reliable" It's nice to get some share price appreciation and dividends, but at a minium, you shoul not end up with a share price decline that ends up being greater than your estimated dividends. This is one to watch over the years and to get out of before others start making the life-time calculations and the stock gradually, but continously floats downward. Good luck.
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