What happened
BP Prudhoe Bay Royalty Trust (BPT -10.11%) stock jumped to a high of $10.50 on Tuesday, up 11.2% over its closing price on Friday. The stock closed on Friday at $9.45, opened on Tuesday at $9.99, and jumped to $10.50 in the first hour of trading on Tuesday. The stock has been up more than 142% over the past year and has a 52-week low of $2.92 and a 52-week high of $10.59.
So what
The Russia-Ukraine conflict gave a bump to all commodity stocks, especially oil, with Brent crude oil hitting $99 a barrel, its highest price since 2014. BP Prudhoe Bay Royalty Trust gets its income from drilling activity in Alaska's Prudhoe Bay by British Petroleum (BP -0.94%). The possibility of sanctions against Russia makes oil elsewhere that much more valuable.
Image source: Getty Images.
The stock has a high-yielding dividend, which it recently announced as $0.58 per share, giving it a yield, as of Tuesday's prices, of around 6.59%. As a trust, the company's revenue from British Petroleum is based on oil prices, Alaska taxes on oil, inflation, and how much oil the basin produces. The key for stockholders is that a dividend is only paid when British Petroleum's revenues from Prudhoe Bay surpass its break-even costs. In 2021, the trust was able to pay dividends in just the third and fourth quarters. The year before, it paid off only in the first quarter. It's already off to a good start this year, though.
Now what
It's too early to tell if the surge in oil prices will remain high enough to allow the energy stock to keep paying dividends for the entire year. Because of that, it's a risky play, despite the stock's share price climb. For example, if the company's net revenues are less than $1 million for two consecutive years, the trust would be terminated. Not that long ago, that looked to be a distinct possibility. As of Q3 2021, the company's cash position had improved to $1.77 million, compared to $266,000 in the same period last year.
