BP Prudhoe Bay: High Dividends, Gathering Risk

This royalty trust does nothing but pump Alaskan crude, so investing in the stock is almost like owning your own piece of an oil field. The 13% yield is compelling, but there's plenty of risk.

Many high-income securities have appreciated so much in recent years that it's a challenge finding investments that satisfy yield-oriented investors. Real estate investment trusts that yield 3% or junk-bond funds that pay 6% just don't do the trick.

Oil and gas royalty trusts and master limited partnerships remain the exceptions. They continue to offer high and reasonably consistent yields even as their share prices have also risen. One trust that has always caught my eye is BP Prudhoe Bay Royalty Trust (symbol BPT). At $61.70, the price at which it closed on March 21, the stock yields a rousing 13.7% based on the past four quarterly distributions, which totaled $8.48 a share. The total payout would have been at least 50 cents a share higher had not BP been forced last summer to shut part of its production for six weeks to fix corroded pipeline.

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Jeffrey R. Kosnett
Senior Editor, Kiplinger's Personal Finance
Kosnett is the editor of Kiplinger's Investing for Income and writes the "Cash in Hand" column for Kiplinger's Personal Finance. He is an income-investing expert who covers bonds, real estate investment trusts, oil and gas income deals, dividend stocks and anything else that pays interest and dividends. He joined Kiplinger in 1981 after six years in newspapers, including the Baltimore Sun. He is a 1976 journalism graduate from the Medill School at Northwestern University and completed an executive program at the Carnegie-Mellon University business school in 1978.