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 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 Bay Royalty Trust (NYSE:BPT) predicts the oil will run dry after 2029.
Oil, gas and multiple locations
Sabine Royalty Trust (NYSE:SBR) 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%.
Resourcing Texas
The trust has a market cap of $634 million and a dividend yield of almost 8%. Dividends pay monthly. Permian Basin Royalty Trust (NYSE:PBT)’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
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 Bay Royalty Trust (NYSE:BPT) is the big player but could prove overvalued with trading prices hovering around $85. Sabine Royalty Trust (NYSE:SBR) seems worth its low $51 price with its geographic diversification and over 7% dividend yield. Out of the two “bargain” royalty trusts, Permian Basin Royalty Trust (NYSE:PBT) has more room for growth.
The article 4 Royal High-Yield Energy Stocks originally appeared on Fool.com is written by Brandy Betz.
Brandy Betz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
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