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BP Prudhoe Bay Royalty Trust (BPT): Should You Trust the Highest-Dividend-Paying Stocks in Energy?

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Energy trusts are among the more popular stocks in energy these days. That popularity is due to one important factor, these trusts are among the highest-paying dividend stocks in the market. Let’s drill down a little deeper into some of the more popular energy trusts to see if these are worth your trust and your investment dollars.

BP Prudhoe Bay Royalty Trust (NYSE:BPT)
Created in 1989, the property of the BP Prudhoe Bay Royalty Trust consists of an overriding royalty interest of oil and condensate production from BP‘s Prudhoe Bay oil field located on the North Slope in Alaska. The trust makes quarterly payments to investors of the income after expenses, which can vary each quarter. Over the past year the trust has paid out an average of $2.22 per quarter which would imply a yield of around 9.4%. The key point that investors must understand is that the oil in the field is a finite resource, meaning that it will run out. Under current projections it’s expected that the trust will run dry around the year 2029.

Chesapeake Granite Wash Trust (NYSE:CHKR)
Created by Chesapeake Energy, the Granite Wash Trust owns royalty interests in 69 currently producing wells and 118 wells that are still to be drilled in Oklahoma in an area of mutual interest. The wells within the trust are producing out of the Granite Wash formation of the Anadarko Basin. As you can see on the map below, the trust has a very focused area of interest.

Source: Chesapeake Granite Wash Trust

Over the past year the trust has paid an average of $0.65 in distributions each quarter, which would imply a yield of around 17.5% and puts it among the highest-dividend-paying stocks on the market today. Again, like the Prudhoe Bay Trust, the yield will fluctuate over time while the income here is expected to run dry in 2031.


SandRidge Mississippian Trust I (NYSE:SDT) and Trust II
These trusts were created by SandRidge Energy Inc. (NYSE:SD), with the first Mississippian Trust formed in 2010 and the second formed one year later. Both trusts own royalty interests in oil and gas properties targeting the Mississippian formation and have future upside as SandRidge drills wells as part of the areas of mutual interest.

Over the past year, the first trust has paid an average of $0.66 per quarter, which equates to a yield of about 18%; however, it is important to note that the trust’s distribution has fluctuated by almost $0.20 over the past year and a half. The second trust has averaged a payout of $0.47 per quarter which would equate to an average yield of 14%. Here again, the trust’s high dividend has fluctuated since it went public with a move of more than $0.30 per unit. One of the contributing factors is that some of the wells SandRidge Energy Inc. (NYSE:SD) has drilled recently had much higher natural gas volumes than expected.

These two trusts might be among the highest-dividend-paying stocks in the market, but those distributions are driven by the volume of oil and gas flowing out of the wells and have the potential to be highly volatile as commodity prices move as well. The other thing to keep in mind is the relationship to SandRidge Energy Inc. (NYSE:SD). These trusts were created to help fund the growth at SandRidge, so you need to understand that relationship before investing your hard-earned money. These trusts should provide investors with substantial income over the long term, even though the wells will eventually run dry.

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