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Source: San Juan Basin Royalty Trust.

Most investors love to get regular income from their investments, and that's one reason that dividend stocks are so popular among income-hungry investors. But the vast majority of dividend stocks only make quarterly payments, leaving eight months out of the year when shareholders won't receive checks. One of the few companies to make monthly payments instead is San Juan Basin Royalty Trust (NYSE:SJT), which has a long track record of paying dividends that stretches back to 1987.

As its name indicates, San Juan Basin is a royalty trust, receiving its income from the proceeds of its ownership of rights to oil- and natural gas-producing properties. Royalty trusts generally have attractive dividend yields, but it's important to remember that most of those monthly payments include at least some amount of depletion of the original asset. That means you can't assume that your shares will necessarily hold their value over time. Let's take a closer look at San Juan Basin Royalty Trust and its monthly income.

Sjt Area
Map of broader San Juan Basin. Source: USGS.

Dividend stats on San Juan Basin Royalty Trust

Most Recent Monthly Dividend per Share

$0.101

Current Yield Based on Trailing-12-Month Dividends

7.2%

Last Missed Dividend Payment

April 2013

1-Year Total Return

30%

Source: Yahoo! Finance.

How San Juan Basin Royalty Trust works
Like most royalty trusts, San Juan has a specific set of assets tied to its energy production and its dividend income. San Juan owns a 75% net overriding royalty interest carved out of an oil and gas leasehold and royalty interest in the San Juan Basin in northwestern New Mexico. Under the trust established by Southland Royalty, and having Compass Bank as its current trustee, San Juan makes monthly distributions to investors after deducting expenses for administrative costs, as well as any other amounts the trust is required to hold in cash on hand.

Sjt Image

Source: San Juan Basin Royalty Trust.

One thing investors should know, though, is that if San Juan doesn't have any income to distribute in a given month, then they won't necessarily get payments. That has happened on several different occasions over the years, most recently in 2012 and 2013 amid extremely low natural gas prices. Yet the royalty trust has been relatively stable when energy prices have been high enough, and you'd have to go back more than a decade to see the last time before 2012 that San Juan failed to make a monthly distribution.

Nearly all of the income that San Juan generates comes from natural gas, which has left it particularly vulnerable to price swings over the years. In 2013, the company generated net royalty payments of almost $0.82 per trust unit, and all but about $0.03 of that came from natural gas. Therefore, rising or falling natural gas prices have a huge impact on San Juan's value.

San Juan also carries the tax advantages that royalty trusts enjoy compared to regular dividend stocks. Along with each distribution that San Juan makes, investors are allocated a portion of the trust's severance taxes, administrative expenses, and cost depletion. That can give some investors valuable tax benefits that can lower taxes relative to a regular dividend stock with the same size payout. At the same time, though, the taxable income that San Juan generates is treated as ordinary income, which carries a higher tax rate than the dividends that most regular stocks pay.

Finally, it's important to note that the trust will only last for a fixed period of time. San Juan is due to expire when investors owning at least 75% of its units terminate the trust, or when the revenue falls below $1 million annually for two consecutive years. Conservative estimates have the trust continuing for 10 to 15 years, and that could be extended if new methods to recover oil and gas are found.

The big downside for San Juan is that monthly payments fluctuate, so you can't be sure exactly how much you're going to receive in each check. With direct exposure to the price of natural gas, though, San Juan is a great way to invest if you think natural gas demand is likely to climb from current levels over the long run.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.