3 Oil & Gas Royalty Trusts For $100 Oil

The meteoric rise in oil and gas prices in recent months has had numerous impacts on the economy as a whole, as well as stock prices. While the broader market has been in a downtrend for most of 2022, oil and gas commodities remain elevated. That has been good news for those companies that are exposed to the prices of these commodities, either directly or indirectly. One such asset class that has benefited strongly from this is oil and gas royalty trusts. This asset class is highly volatile, and tends to offer a lot of risk for investors, so they aren't for everyone. However, with oil at $100+ today, oil and gas royalty trusts offer direct exposure to a soaring commodity class. In addition, many of these trusts offer monthly dividends rather than quarterly, which allows for faster compounding of wealth over time. Let's take a look at three oil and gas royalty trusts that offer monthly dividends, and that we like for their high current yields. Permian Basin Royalty Trust Our first stock is Permian Basin Royalty Trust , which is a trust that holds royalty interest in various oil and gas properties in the U.S. The trust owns an interest in hundreds of different producing wells, all of which are in Texas. These properties cover producing wells for both oil and gas, although Permian Basin's interest are mostly in oil-producing wells. The trust collects royalties on these wells as they produce oil and gas, which is how it generates revenue. The trust was founded in 1980, generates about $12 million in annual revenue, and trades with a market cap of $612 million. Permian Basin's dividend is variable, as the trust's ability to distribute cash to shareholders depends entirely upon its ability to generate royalties off of its ownership interests. Because of that, and because of the factors that determine revenue for the trust such as commodity pricing, production volume, and costs, the amount available to distribute each month is different. The most recent 12 monthly distributions have summed to just over $0.28 per share, which would give the stock a yield of 2.0% in the past year. The May 2022 distribution was set at $0.0318 cents per share, which would produce an annualized yield of 2.7%. We don't believe the trust will be able to necessarily maintain a monthly payment of more than $0.03 per share, so the forward yield likely lies somewhere between 2.0% and 2.7%. Now, because dividend payments are variable, Permian Basin doesn't have a dividend increase streak to speak of like a more traditional income stock. However, the trust has paid dividends to shareholders consecutively for nearly three decades, so its dividend longevity is quite good all things considered. We currently see earnings at $0.40 per share for this year, which is very close to the annualized distribution for May. However, royalty trusts exist only to distribute earnings to shareholders, so the payout ratio will always be extremely high. We don't see that as a negative for royalty trusts, but note that the variable dividend policy means the distribution can move up or down each month. This is not a sign of a lack of dividend sustainability. Finally, we see 5% annual earnings growth for the trust, meaning shareholders could see rising distributions in the years to come, provided oil and gas prices remain elevated. Sabine Royalty Trust Our next trust is Sabine Royalty Trust , an entity that owns interests in mineral and oil and gas properties in the U.S. The trust's interests include landowner's royalties, production payments, and other non-participatory interests in properties in Florida, Louisiana, Mississippi, New Mexico, Oklahoma, and Texas. The trust was founded in 1982, produced $61 million in revenue last year, and has a market cap of $961 million. Like Permian Basin, Sabine pays a variable dividend each month. The past 12 distributions have added up to $5.25 per share, which would yield 7.6% on today's share price. The most recent declared dividend was for an annualized payout of $7.24, as the trust has raised its dividend on higher oil and mineral prices. Were that payout to be sustained for a year, the stock would yield 10.5%. Sabine also has a decades-long history of paying dividends to shareholders, but it also lacks consistent dividend increases, owed to its variable payment structure. We see the trust earning $4.80 per share this year, meaning its current dividend is likely too high to be sustainable, and is subject to being lowered later this year. In addition, we are cautious on Sabine's growth potential, and see declining earnings from what could be a medium-term peak this year. That would reduce cash available for distribution should that come to fruition. PermRock Royalty Trust Our final stock is PermRock Royalty Trust , which owns interest in oil and natural gas production properties in Texas. The trust was founded in 2017, generates less than $10 million in annual revenue, and trades with a market cap of $109 million. PermRock's dividend, like the other two, is variable. The most recent declaration was for an annualized payout of $0.75 per share, which would yield 8.3%. The most recent 12 monthly dividends were for a total of $0.75 as well, so we see PermRock's sustainable yield right at 8.3%. PermRock lacks the dividend history of the other two stocks on this list because it hasn't been around for more than a handful of years. The good news is that we see earnings at $0.85 per share for this year, which means that if the trust were to payout $0.75, it would have sufficient cash to raise the dividend. That should also mean that a cut from current levels is less likely. Finally, we see growth at 5% annually, so combined with the relatively low payout ratio, we think PermRock has a bright future in front of it in terms of its sizable yield. Final Thoughts While oil and gas royalty trusts aren't necessarily for everyone given their inherent risk, the asset class still has a lot to offer. Two of the stocks listed here offer tremendously high yields, and all three stocks have varying degrees of growth and safety characteristics. In addition, all three pay shareholders monthly instead of quarterly. For investors looking to take advantage of lofty oil and gas prices, we like royalty trusts, including Permian Basin, Sabine, and PermRock.

3 Oil & Gas Royalty Trusts For $100 Oil

For investors looking to take advantage of lofty oil and gas prices, we like these investment vehicles.

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