Updated May 25, 2021 by Bob Ciura
Income investors looking to buy oil and gas stocks may want to get hold of the booming Permian Basin. The PermRock Royalty Trust (PRT) is an oil and gas producer with all of its properties in the Permian Basin. The stock currently offers a return of nearly 10%.
In addition to the high dividend yield, PermRock also pays off per month Dividends instead of the traditional quarterly payout schedule. Monthly dividend payments are far superior for investors who need to budget their dividend payments (e.g. retirees).
There are over 50 monthly dividend stocks. You can view the full list of monthly dividend stocks (as well as key financial metrics like payout ratios and dividend yields) by clicking the link below:
PermRock is immediately attractive because of its near double-digit dividend yield. As always, investors need to understand the underlying business to ensure that the dividend payout is sustainable.
This is where oil and gas royalties become particularly risky, which is why only investors with a high risk tolerance should consider buying PermRock.
The PermRock Royalty Trust is a trust founded in November 2017 by Boaz Energy, a company that acquires, develops and operates oil and natural gas properties in the Permian Basin.
The trust owns land in the Permian Basin. It receives 80% of the net profit from the sale of oil and natural gas produced in its properties and pays out the net profit in dividends each month.
According to the EIA, the Permian Basin is the most productive oil producing area in the US. This area covers 75,000 square miles in west Texas and southeastern New Mexico. More than 30 billion barrels of oil and more than 75 tcf of natural gas have been produced since its discovery in 1921.
Source: Investor Relations
The qualities of trust have distinct advantages. They consist of long-lasting reserves in mature, conventional oil fields with a reliable production profile.
Because of the mature nature of these oil fields, production and reserve estimates are extremely reliable. This is in sharp contrast to the estimates of unconventional fields, which are characterized by a higher degree of uncertainty.
These reserves are sufficient for approximately 10 years of production at the current production rate. However, the Trust can increase its performance through water flooding techniques while discovering new reserves in the region. As a result, management expects the trust to economically produce oil and natural gas for at least 75 years. Such a long reserve life should be enough to please even the most discerning of investors.
It’s also worth noting that the characteristics of the trust are characterized by remarkably high operating margins. Since the future path of the oil price is highly unpredictable, oil producers must constantly increase their production year after year in order to increase their profits in the long term.
The trust dissolvesAnnual results for the period ended December 31stst. The net income generated by the Trust was $ 3.2 million for the whole yearcompared to $ 10.4 million in 2019. The reasons for this significant drop in profits have been reduced oil and natural gas prices, and increased development costs.
The average realized selling price of oil per barrel in 2020 was $40.56compared to a cheap price of $51.06 in the previous year. The Trust’s distributable income was $ 1.9 million, a significant decrease from $ 8.8 million earned in 2019.
Distributable Earnings per Share of $ 0.16 decreased 78% from $ 0.73 in 2019. The trust paid out all distributable income Shareholders as distributions with a distribution ratio of 100%. Total reserves from December 30thth2020 was $ 1 Million versus $600000 am December 30thth, 2019.
P.ermRock had previously led for production growth of around 4.0% annually, however oil and Natural gas sales Volume declined in 2020 due to lower sales and prices, partly due to the COVID– –19 pandemic.
The trust hasn’t missed a distribution payment until 2021, although it took several months last year without paying a distribution. The unpredictability of the dividend is negative for potential investors.
As mentioned above, the PermRock Royalty Trust pays a variable dividend every month based on the underlying net income. In 2020, the Trust paid dividends totaling $ 0.157014 per share. On that basis, the stock would have a high dividend yield of nearly 10%.
The trust got off to a better start into 2021 after announcing distributions of $ 0.186615 per share through May. This means that the company has already decided to pay a higher dividend in the first five months of 2021 than it did in 2020 as a whole.
Overall, the PermRock Royalty Trust offers an exceptionally high dividend yield. However, investors should keep in mind that dividends can vary widely from month to month depending on underlying oil prices. The extremely weak oil prices from 2019 to 2020 were a major challenge for PermRock.
Conversely, if the price of oil rises significantly from its current level, the PermRock Royalty Trust will benefit much more than the larger oil companies. In fact, the recent surge in oil prices has allowed PermRock to hike its dividend again in 2021.
Hence, the trust is ideal for those who are convinced of higher future oil prices and want to face the oil boom in the Permian Basin.
To sum up, confidence is much more focused on the oil price than the integrated oil companies and therefore has much more upside potential in the positive scenario (higher oil prices) and much more downside in the event of a downturn in the energy sector.
Assuming the price of oil will remain at currently reasonable levels in the coming years, it is expected that the PermRock Royalty Trust will grow earnings per share by an average of about 5% per year thanks to a mix of production growth and higher oil prices .
The characteristics of PermRock are in the the Permian Basin, the most producing productive oilEA in the US A king of oil, however trust is a poor Way to Exposure to booming production in this Area. We believe investors would be much better off in a traditional oil and gas producer or midstream Companies.
Suspension of the dividend for a couple of months in 2020 was a cautious move, and although it was reinstated, We expect the dividend will likely not to return to its previous high in the future.
The PermRock Royalty Trust has faced a number of challenges in recent years, including the weak oil price environment and the coronavirus pandemic that suppressed global oil demand. The trust offers an exceptionally high dividend yield and operates in the most productive oil producing region in the United States with promising growth prospects.
With no further downturn in the energy sector in the short term, we believe the trust will offer a consistently high dividend yield. However, due to the trust’s undiversified business model and its dramatic reliance on the price of oil, investors should not invest a large portion of their portfolio in this stock.
Additionally, the trust’s short history leaves much to be desired for investors looking for a decent level of dividend security and consistency.
Thank you for reading this article. Please send feedback, corrections, or questions to [email protected]