16.6%-Yielding San Juan Basin Royalty Stock Hikes Monthly Dividend 122%
Why the Outlook for SJT Stock Is Bullish
Oil prices are down from their 2022 high of $130.00 per barrel to about $77.00 per barrel, but the forecast for West Texas Intermediate (WTI) crude oil is bullish. That’s despite fears of a recession happening this year.
This should be a boon for oil and gas companies like San Juan Basin Royalty Trust (NYSE:SJT).
The global demand for oil fell significantly when China imposed strict COVID-19 restrictions, limiting industrial activity. Now that the Chinese economy has reopened, analysts believe the oil demand from the world’s second-biggest economy will outstrip supply.
Morgan Stanley (NYSE:MS) recently increased its growth forecast for global oil demand for 2023 by 36% from 1.4 to 1.9 million barrels per day (BPD). The investment bank cited China’s economic rebound and the air travel industry’s recovery as reasons for its bullish call. (Source: “Morgan Stanley Ups 2023 Oil Demand Growth Estimate by 36%, Flags Russia Risk,” Reuters, February 22, 2023.)
The International Energy Agency (IEA) also estimates that the global demand for oil will climb by 1.9 million BPD in 2023—to a record 101.7 million BPD. (Source: “Oil Market Report – January 2023,” IEA, last accessed March 2, 2023.)
The Organization of the Petroleum Exporting Companies (OPEC) also has a bullish outlook for oil demand in 2023, suggesting that the rebound of mobility and air travel will boost the worldwide demand for fuel. Moreover, the Chinese government’s plan to expand its spending to aid the country’s economic recovery is expected to support oil demand in manufacturing and construction. (Source: “Monthly Oil Market Report,” OPEC, February 14, 2023.)
All of this should juice oil prices and improve the finances and share prices of energy companies like San Juan Basin Royalty Trust.
As of this writing, San Juan Basin Royalty stock is up by about seven percent month-over-month, 12% year-to-date, and 43% year-over-year.
Chart courtesy of StockCharts.com
About San Juan Basin Royalty Trust
San Juan Basin Royalty is a royalty trust with a 75% net overriding royalty interest in the San Juan Basin of New Mexico. The company’s subject interests are owned by Hilcorp San Juan LP. (Source: “About Us,” San Juan Basin Royalty Trust, last accessed March 2, 2023.)
Virtually every penny earned from San Juan Basin Royalty’s oil and gas leaseholds goes to unitholders as monthly dividends. The rising oil demand and prices should help juice SJT stock’s monthly payout.
San Juan Basin Royalty stock currently pays annualized dividends of $1.84 per unit, for a current inflation-crushing yield of 16.6%.
Unlike actively managed trusts, in which a management team works to grow the company’s assets, San Juan Basin Royalty Trust doesn’t engage in any new business or commercial activity, nor does it use any portion of the trust to acquire additional properties.
What this means is that the company’s wells will eventually run dry, but that won’t happen for quite some time. The trust has enough energy reserves to operate for at least another 10 years—probably more. The number of years could increase as drilling technology improves.
This means San Juan Basin Royalty Trust could safely provide SJT stockholders with reliable, ultra-high-yield dividends for years to come.
March Dividend Jumps 122%
In February, San Juan Basin Royalty declared a monthly cash distribution of $11.6 million, or $0.249833 per unit (to be paid in March). This was up by 122% from the $0.11225 per unit the trust distributed in February. The company primarily based the new dividend on its production during December 2022. (Source: “San Juan Basin Royalty Trust Declares Cash Distribution for February 2023 and Announces Hilcorp’s 2023 Capital Plan,” San Juan Basin Royalty Trust, February 17, 2023.)
For most companies, their dividends are pretty consistent. This isn’t the case with San Juan Basin Royalty; its monthly distribution fluctuates based on oil production and prices, which are fueled by supply and demand. (Source: “Cash Distributions,” San Juan Basin Royalty Trust, last accessed March 2, 2023.)
San Juan Basin Royalty stock’s annual payouts have varied drastically. As you can see in the chart below, the annualized dividends more than doubled from 2021 to 2022 and almost flatlined in 2019 and 2020 during the COVID-19 pandemic.
|Year||Dividend Per Unit|
Therefore, SJT stock isn’t an investment you can just add to your portfolio and forget about. Investors need to pay attention to what’s going on in the energy sector. Right now, the industry tailwinds favor San Juan Basin Royalty Trust.
The Lowdown on San Juan Basin Royalty Stock
San Juan Basin Royalty Trust is a great oil and gas company that has been taking full advantage of the strengths of the energy industry. This has sent its share price higher and has resulted in robust monthly dividends.
I imagine San Juan Basin Royalty stock’s price and monthly, ultra-high-yield dividends will perform even better when the global economy isn’t being hamstrung by high inflation and fears of a potential recession.