Royalty investments, previously a domain only open to wealthier income investors, are becoming increasingly more accessible to ordinary investors. Internet technology combined with more efficient financial markets has produced a win-win environment for the buying and selling of royalties.
If you are attuned to popular culture, one of the more interesting possibilities for investing in royalties exists with the music industry. Check out this article by Jasmine Birtles:
Oil and Gas Royalties
Oil and gas royalty trusts have traded on the stock exchanges for years. One may, however, avoid the wall street commissions and overhead expenses that eat into an income stream by bypassing the royalty trusts altogether and purchasing royalty shares directly from producers and owners of oil and gas interests. Royalty income obtained in this manner will invariably provide a higher yield (although less diversification may increase risk). This is one area where you need to thoroughly understand what you are getting into before investing. Due diligence and legal reviews are always a good idea. One good site to find possible investments is ListMineralRights.com. View the ads for Royalties for Sale.
Other Areas Not Quite Ready
Other industries where royalties are emerging as viable investment income streams are the pharmaceutical industry and the gold and silver mining industry. Some pharmaceutical companies sell royalties for drugs they produce. Unfortunately for the individual investor, most of these are purchased by large investors (Royalty Pharma, Cowen Healthcare, Paul Capital, DRI Capital) and other pharmaceuticals. In precious metals mining, the gold and silver royalty “streamers” can be thought of as mining companies without the risks associated with the mining business (i.e., increasing operating expenses, union interference, litigation, environmental regulations, capital expenditures, and availability of capital or credit). Their primary risk is the price of the underlying metal and, of course, macroeconomic factors like rising interest rates. Gold royalty streamers include Franco-Nevada (FNV), Royal Gold (RGLD), and Sandstorm Gold (SAND). A silver royalty streamer is Silver Wheaton (SLW). These streamers have not significantly outperformed the GLD and SLV ETFs over the past year, so I cannot recommend them as smart investments for income at this time. However, should economic and market conditions change, they may be worth considering.