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Section 29? What the Heck is Section 29?


No, it's not the rowdiest section in your favorite stadium. It's
an obscure part of the Income Tax Code. Before you go screaming
off into the night relax, this is very simple and very easy to
understand. Section 29 creates a tax credit for entities using
alternative fuels or alternative methods of gathering energy.
Keep in mind this is a Credit not a deduction. It will reduce
the tax bill dollar for dollar.

How does this benefit me, you ask? Well, it just so happens that
there are a few publicly trading companies that have set up
special entities (called Royalty Trusts) to take full advantage
of Section 29. These trusts are also publicly traded, which
means the average investor (that's you) can get a tax break just
like the big boys. I know your thinking that the tax benefit
must be too small to be worth the effort…but…you'd be wrong. You
see not only do you get the tax benefit… but also, the trust
must typically pay out a higher royalty payment than
the "normal" stock pays out in dividends. To sum it all up, you
get more cash and a tax credit to boot.

Let me show you a real world example. (Figures are from the
trailing twelve months, future performance may vary)

Dominion Resources (D) is an energy company many of you should
be familiar with. Strong, long term stable track record with a
substantial quarterly dividend. Some of you may even have it in
your portfolio. If so, what follows will certainly give you
pause.

I'd be surprised if many of you have ever heard of the Black
Warrior Trust (DOM). Some Dominion shareholders may even be
surprised to learn it is run by Dominion Resources. But take a
look at this issue (especially if you hold the parent company
stock.

From the latest close:

Dominion Resources
Share price $60.97
Dividend $2.58
Yield ~4.25%

Black Warrior Trust
Share Price $18.48
Dividend $2.30
Yield ~12.50%
Tax Credit ~$0.80

Almost triple the payout, plus a substantial tax credit!
So if you have 100 shares of "D" you'll get a dividend of $258.
Not bad for a $6100 investment.

But, with that same $6100 you can own 300 shares of "DOM" (same
company, just a different structure), get a royalty of $690, a
Tax Credit of $240 and still have $550 cash to invest elsewhere.

These are typical numbers for several of the companies that take
advantage of Section 29. You can participate. It doesn't require
anything special, even the folks at H&R Block know how to enter
it in to your 1040!

You can find these companies by searching for "Royalty Trust" in
most any Search Engine. The returns vary slightly and from time
to time one or another with have its price depressed and you can
get some really astounding returns. If you are investing for
income or looking to add a little punch and diversify your
portfolio, Royalty Trusts Might been worth your while to look
at. Recently my parents had Torch Energy Royalty Trust in their
holdings. During the time they held it they collected more in
Royalties and Tax Credits than they originally paid for the
stock and sold out for almost double the purchase amount. Not
too shabby for a two and a half year hold.

If you have questions I'll be here all week.


The Bird of Prey
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