Want a high-yielding energy stock where the dividend isn't exactly a dividend? Meet royalty trusts.
Energy royalty trusts have a similar structure to real estate investment trusts, or REITs,but switch in consumable resources such as oil and gas for the bundle of properties. The trusts own interests in the holdings, not the actual holdings. So an oil royalty trust doesn't own the oil field but instead receives royalties on what's produced.
Units of the trusts trade on the exchanges the same way as stocks. And a dividend-esque payment is returned to unitholders either monthly or quarterly. The payments are actually unit payments, but the difference largely comes down to depletion-related tax breaks. So let's agree for brevity to call them dividends anyway.
Here's a look at three of the top royalty trusts in the United States.
Betting big on one oil field
BP Prudhoe Bay Royalty Trust (NYSE:BPT) has all of its interests in one oil field located in North Slope, Alaska. The trust receives about 16% royalties on the lesser of either the first 90,000 barrels per day or the overall average daily production.
BP Prudhoe has a market cap of around $1.8 billion and a dividend yield over 10%. Dividends pay quarterly. In the second quarter, average net production was down 5% year over year while the average per barrel royalty was down nearly 7%.
The reliance on one field comes with a clearer cut expiration date than more diversified trusts. BP Prudhoe predicts the oil will run dry after 2029.
Oil, gas and multiple locations
Sabine Royalty Trust (NYSE:SBR) specializes in oil and gas with interests in six states: Florida, Mississippi, Louisiana, New Mexico, Texas, and Oklahoma, for a total of around 5,400 tracts.
Sabine has a $756 million market cap and a 7.19% dividend yield. Dividends pay out monthly.The trust announced its most recent dividend in early August and reported that oil production for May was up 27% year over year while gas production for April was down 17% on the year. Average price per oil barrel rose 7% during the same period, while the gas price rose 60%.
Permian Basin Royalty Trust (NYSE:PBT) holds oil and gas interests in 34 Texas counties across two properties. The trust's net overriding royalty interests vary between 75% and 95% depending on the property.
The trust has a market cap of $634 million and a dividend yield of almost 8%. Dividends pay monthly. Permian Basin's most recent dividend was announced in late August, and the report indicated that oil products were up 23% year over year while gas production was up 9%. Average prices for the same period were up 25% for oil and 50% for gas.
Getting gas in New Mexico
San Juan Basin Royalty Trust (NYSE:SJT) has a 75% royalty interest in the gas and oil found in the New Mexico basin of the same name.But the majority of the interests lie in gas.
The trust has a market cap of about $770 million and a dividend yield of 6.55%. The most recently reported quarter featured a 4% year-over-year growth in average daily gas production and a 57% growth in oil production. Note that the jump still only made for about 168 barrels of oil per day compared to 94,036 Mcf of gas. Average prices rose 3% for gas and fell nearly 10% for oil.
Foolish final thoughts
Royalty trusts offer an interesting opportunity for dividend investors wanting a piece of the energy market. BP Prudhoe is the big player but could prove overvalued with trading prices hovering around $85. Sabine seems worth its low $51 price with its geographic diversification and over 7% dividend yield. Out of the two "bargain" royalty trusts, Permian has more room for growth.