A HIGH-YIELD/LOW-RISK PLAY IN UNCERTAIN TIMES

This week’s pick, North European Oil Royalty Trust (NRT) is both an income and capital appreciation play backed by the strength of the natural resource boom.

Founded in 1975 and based in Red Bank, New Jersey, NRT holds royalty rights covering gas and oil production concessions or leases in northwestern Germany. Energy trusts like NRT don’t produce anything. Instead, underlying operating companies do the hard work — in this case, sell natural gas, sulphur, and oil. NRT simply collects royalties from these sales and pays them out to investors on a quarterly basis, after subtracting administrative costs, of course. Though future payouts aren’t guaranteed, based on its current price, NRT is yielding a solid 8.6%.

Last quarter, NRT paid out a whopping 88 cents per share — 19 cents more than the distribution made for last year’s equivalent quarter. The combination of higher gas prices and higher gas sales easily offset the impact of lower average exchange rates.

Here’s what I particularly like about NRT versus some other energy trusts around. The operating companies that provide royalties are local German exploration and development subsidiaries of oil giants Exxon Mobil and Royal Dutch/Shell Group. That’s far from the mom ‘n pop energy companies that provide royalties to many other trusts. This makes NRT a safer bet than most others.

The underlying operating companies are also in relatively stable businesses. Many other high yield plays are based on volatile commodities and mining stocks. That can induce an uncomfortable feeling of vertigo — especially in these uncertain times.

Finally, the stock has been surprisingly resilient in the face of a downturn in global markets. Off its recent highs, NRT also offers the opportunity to profit from a bounce as it resumes its upward trend.

So buy Northern European Royalty Trust (NRT) at market today and place your stop at $32.75. There are no options this one.

PORTFOLIO UPDATE

Volatile markets mean that we were stopped out of our position in cell phone giant Nokia, as the underlying strength of its business was unable to buck the downtrend in European equities.

Volatile global markets combined with the summer lull make this a challenging time of year. As a result, we’ll be looking to take profits more quickly than normal for the next few months.