10.8%-Yielding CRT Stock: A Great Play for Contrarian Investors?
December 27, 2024
CRT Stock Has Rallied 13%+ Over the Last 3 Months
Admittedly, lower oil and gas prices are cutting into the profits of oil and gas companies, including oil and gas exploration and production (E&P) companies like Cross Timbers Royalty Trust (NYSE:CRT).
Despite West Texas Intermediate Crude trading under $70.00 per barrel, the longer-term outlook is solid. Global demand for oil is growing on an annual basis, and it looks like the Organization of the Petroleum Exporting Countries Plus (OPEC+) will extend its production cuts well into 2025. Growth in China will eventually come back, too.
For now, bearish analysts have set an average price for Brent Crude of $74.53 on weaker global demand. In 2024, Brent Crude averaged $80.00 per barrel. But eventually oil prices will bounce back. And it’s better to look at great energy stocks that are beaten down because of industry trends and not because of terrible management.
And that’s what you get with CRT stock.
Cross Timbers Royalty is an oil & gas exploration & production company that holds 90% of the net profits interests in certain royalty and overriding-royalty property interests in Texas, Oklahoma, and New Mexico. It also holds 75% of the net profits interests in certain working-interest properties in Texas and Oklahoma. (Source: “About Us,” Cross Timbers Royalty Trust, last accessed December 5, 2024.)
XTO Energy Inc. owns the underlying properties from which these net profit interests are conveyed. The net profits interests are the only assets of the trust, other than cash held for trust expenses and distribution to unitholders.
Most of Cross Timbers Royalty Trust’s net profits income is from long-lived gas properties in the San Juan Basin of northwestern New Mexico. Because the 90% net profits interests aren’t subject to production or development costs, the net profits income generally only varies due to changes in sales volumes or prices.
The trust’s 75% net profits interests are conveyed from underlying working interests in seven large, predominantly oil-producing properties in Texas and Oklahoma. The net profits income from these properties is calculated separately for each state and is reduced by production and development costs.
Unlike some energy companies, Cross Timbers doesn’t plow money into developing new wells. Instead, it pays out virtually all of its earnings to CRT stockholders.
November Cash Distribution of $0.09/Unit
As an energy company, Cross Timbers’ monthly distribution fluctuates based on volume, prices, and development costs. For example, in the second quarter, it reported net profit of $1.56 million, down from $3.16 million in the second quarter of 2023. (Source: “2nd Quarter Report 2024,” Cross Timbers Royalty Trust, last accessed October 7, 2024.)
The drop in the company’s second-quarter 2024 net profits was a result of lower gas prices and increased development costs, partially offset by increased gas and oil production and higher oil prices.
This resulted in distributable income for the quarter of $1.34 million, or $0.224293 per unit.
Cross Timbers hasn’t announced its third-quarter results yet, but we know what it paid out during the quarter: $0.096137 (July), $0.05515 (August), and $0.102230 (September), for a third-quarter distribution of $0.253542.
In October, it paid a cash distribution of $0.064592 to unitholders. Oil and gas volumes were both down on a monthly basis. Oil prices were also down a little during the month, going from $77.46 per barrel to $76.37 per barrel. Gas prices were up, though, rising from $3.29 per thousand cubic feet (Mcf) to $4.46 per Mcf. (Source: “Cross Timbers Royalty Trust Declares October Cash Distribution,” Cross Timbers Royalty Trust, October 21, 2024.)
In November, Cross Timbers paid a cash distribution of $0.092742 per unit, or $1.08 on an annual basis, for a current yield of 10.81%. Oil and gas volumes were both up in the quarter, but the average prices for oil and gas were both down, with oil trading hands at $71.39 per barrel and gas at $3.54 per Mcf. (Source: “Cross Timbers Royalty Trust Declares November Cash Distribution,” Cross Timbers Royalty Trust, November 18, 2024.)
CRT Stock Up 13%+ Over Last 3 Months
As you can see in the chart below, CRT stock’s dividends (red line) tend to fluctuate in line with the company’s share price (black line), which, in turn, is influenced by the price of oil (blue line). The graph is a little busy, but you can see the correlation between the three factors.
And while CRT stock has been underperforming this year—down 38% since the start of 2024 and 43% on an annual basis—it’s still up 13.5% over the last three months and approximately 200% from when it bottomed during the 2020 health crisis.
Chart courtesy of StockCharts.com
The Lowdown on CRT Stock
Cross Timbers Royalty Trust is an oil and gas E&P company with a 90% net profit interest in properties in oil-rich basins in Texas, Oklahoma, and New Mexico. While CRT stock is facing industry headwinds right now, as long as Cross Timbers continues to pull oil and gas out of the ground, investors will receive a monthly dividend. When oil prices rebound, CRT stock should get a boost as well.
It’s just a matter of whether investors are patient enough to wait for crude prices to rebound. If they are, they could be on the receiving end of big stock market gains. In February 2023, CRT stock hit an all-time high of $26.17 per unit.
And, under the right conditions, CRT stock can really move. It was one of the best-performing oil and gas stocks in 2021, rising 53%, and again in 2022, advancing 144%.
