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%.
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.