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Mad Money Mailbag: A Slippery Oil Play

A listener learns why royalty trusts may not be the best oil buys.

Editor's note: The following are questions received from viewers of "Mad Money," seen every day at 6 p.m. EDT on CNBC.

When you talk about oil stocks, you generally differentiate between service companies, drillers and the integrateds. What about the royalty trusts and their high dividends? Are they a safe income play?-- Don from Connecticut

James J. Cramer:

Yes and no. These stocks, such as

BP Prudhoe Bay

(BPT) - Get BP Prudhoe Bay Royalty Trust Report


San Juan Basin

(SJT) - Get San Juan Basin Royalty Trust Report

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pay out hefty dividend yields, but the current payments may not be sustainable. The companies generally pay out a fixed portion of their earnings as dividends and have a fixed amount of assets.

Ultimately, the trust will run out of oil or natural gas and the stock will be worth nothing. Before this happens, most trusts usually sell new shares to purchase new land and drilling rights, even though it dilutes existing shareholders.

The trusts can be a good investment, but just make sure you understand how they work first. Remember that a 10% dividend is not so attractive if the underlying stock happens to fall 15% over the course of a year.

Does using a market order cost more? Can I save trading commissions by using limit orders?-- Brent from California

James J. Cramer:

No. Most brokers these days charge the same amount for both kinds of trades. And if there is a difference, the market order is generally cheaper.

Want more Cramer? Check out Jim's rules and commandments for investing from his latest book by

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