Royalty trusts (RTs), which include coal and mining as well as oil and gas, are rights to share income from reserves, making them highly sensitive to prices, the mine or field's productivity and remaining resources, which can be uncertain. RTs are financing vehicles and don't actually own the resources they are connected to. The rights last for a given period and gradually lose value as production winds down.
"If an investor had to choose between MLPs and Royalty Trusts, it might make sense to lean toward MLPs, as they historically are less volatile," Milan said. "Royalty Trusts can have huge swings in value and income streams based on commodity prices and output."
Investors drawn in by fat RT yields can be disappointed, said Janet Briaud, founder and chief investment officer of Briaud Financial Advisors in College Station, Texas.
"When I looked at a fund recently, it stated the yield was more than 11 percent," she said. "However, the five-year return was zero. ... These kinds of investments typically have tremendous volatility, but they can be a good investment if you catch them at the right price." Occasionally, dividends are cut to make debt payments, especially if declining energy prices cut into revenues, she added.
One of the largest RTs is San Juan Basin Royalty Trust (SJT), with rights to gas fields in the San Juan Basin of New Mexico. Yield is about 8 percent, and the trust is up 11 percent this year, but it lost over 35 percent in the past one-year period, according to Morningstar data.
"Because these kinds of investments tend to be much more volatile than what an ordinary investor is comfortable with, the ideal person is a sophisticated investor who understands when to buy it and when to sell it," Briaud said.
Unlike RTs tied to a single production source, MLPs tend to hold multiple assets, making them more diversified and a better bet for ordinary investors, she said.
MLPs and exchange-traded funds that own them are traded like stocks, allowing investors to make trading decisions quickly.
The issue today: How well will prices and yields hold up in coming years? Advisors say MLPs are ideal for investors who can wait out downturns and who expect high demand for oil and gas to continue, ensuring high volumes and fee income from pipelines, refineries and storage facilities.
"We believe that MLPs are a safer and better bet [than RTs] for a diversified portfolio, both due to the oil and natural gas industries' current status and the forward-looking expectations," Milan said, citing likely growth in energy infrastructure.
SL Advisors' Lack said ordinary investors should plan on staying in an MLP for at least three to five years and predicts healthy dividend growth as more oil and gas flows through MLP facilities. "Production continues to surprise to the upside."