Updated June 18, 2021 by Bob Ciura
Thanks to the diverse range on offer on the stock exchange, investors can buy shares in companies of all types and sizes. Companies with a market capitalization of $ 10 billion or more are considered large-cap stocks. Small caps have a market capitalization of less than $ 2 billion.
However, there are still smaller companies trading in the United States. For example, micro-caps are generally companies with a market capitalization of $ 300 million or less.
Cross Timbers Royalty Trust (CRT) is a microcap, and a tiny one at that – it has a market cap of only ~ $ 60 million. Its market cap is tiny, but its dividend is pretty high. Cross Timbers stock has a high dividend yield of nearly 9%.
Cross Timbers also pays a monthly dividend. Sure Dividend has compiled a database of 53 monthly dividend stocks (along with key financial metrics like dividend yields and payout ratios) that you can access below:
Despite its high yield and monthly dividend payouts, Cross Timbers has an extremely uncertain outlook. The company has a very risky business model and its annual dividend payouts have steadily declined since 2014.
Hence, only the most daring investors should consider buying Cross Timbers.
Cross Timbers Royalty Trust was founded on February 12, 1991 and makes money from two sources. First, the revenue comes from a 75 percent net profit-sharing interest in seven oil producing properties in Texas and Oklahoma operated by established oil companies.
In addition, it earns 90% net income from gas producing properties in Texas, Oklahoma and New Mexico. The primary gas producing field is the San Juan Basin in northwest New Mexico.
The Trust was established to collect net income and then use that income to make distribution payments to shareholders. The net income received by the Trust on the last business day of each month is paid out by XTO Energy, a subsidiary of ExxonMobil (XOM).
The 75% profit share of CRT’s net profit is reduced by the cost of production and development, while the 90% portion of the net profit is not subject to these costs. Without production and development costs, the 75% net interest income is usually only influenced by changes in sales volumes or raw material prices.
CRT had royalty income of $5.9 Million in 2019, and $ 5.3 million in 2020.
in the center–Can, CRT reports (5/14th/ 20) Financial results for the first Quarter of the fiscal year20th21. production of gas growth 47% over Quarter of last year thanks to the timing of cash receipts but production of Oil decreased –34% because of Time of receipt of money and the natural decline of the fields. The average realized gas price increased 22%, but the average realized oil price decreased 20%.
overall,Net income decreased by 33%. The trust Not provide any Orientation aid for the current year. CRT will benefit from the recent oil price rally in front–Thank you for COVID valuess to the aggressive production cuts by OPEC and Russia and the ongoing vaccination Program that could Get the pandemic under control this year.
One of the most important catalysts for the further development of Cross Timbers would be higher oil and gas prices. Falling commodity prices have weighed on the trust’s revenues in recent years. We expect the recent drop in commodity prices to weigh on the company again in the second quarter. The weak commodity prices will continue to limit distributable income and thus the share price.
The price of oil is currently above $ 70 a barrel in the US after a huge downturn and major rebound after the period of COVID-19-induced economic downturn. With strong oil prices in the first quarter, Cross Timbers was able to generate a strong payout. Should oil prices continue to recover, we will see a nice growth trajectory ahead of us.
In fact, the company’s financial results should improve significantly in 2021 versus 2020. Natural gas prices for 2020 averaged $ 2.56 per Mcf for Cross Timbers, below 32% of 2019 average price of $ 3.74 per Mcf. In the meantime tThe average oil price was $ 40.74 a barrel, a minus 23% of 2019 average price of $ 52.79 a barrel.
With both natural gas and oil currently trading well above the 2020 average, this year should see a significant recovery for Cross Timbers.
As a result, rising oil prices should give Cross Timbers a boost and help offset some of the damage that was done over the past year. That would suggest that perhaps the worst was seen for Cross Timbers at this point.
Cross Timbers has very minimal operating costs as it is a royalty trust. This means that as revenues increase, the operational leverage is enormous. As mentioned earlier, Cross Timbers will bring significant benefits if oil prices continue to recover.
Because of this, oil and gas prices are absolutely critical to the trust’s distributable income, and its growth therefore depends almost entirely on commodity prices. Proven reserves as of December 31, 2020 for the underlying properties were estimated 1.5 million barrels of oil and 14.6 billion cubic feet Natural gas.
There isn’t much that the trust can do to affect growth, so shareholders should be aware of that. Cross Timbers is a passive game to collect license income and thus oil and gas prices.
Since Cross Timbers is a trust, its dividends are classified as royalty income. And since the distributions are considered ordinary income, they are taxed at the individual marginal tax rate.
Cross Timbers dividends are declared 10 calendar days prior to the cutoff date, the last business day of each month. The company’s dividend payouts have steadily declined in recent years, reflecting weak commodity prices.
Source: Investor Presentation
In 2018, Cross Timber paid cumulative dividends of approximately $ 1.43 per share. However, in 2019, the payouts fell to $ 0.88 per share, followed by a further drop to $ 0.78 per share in 2020.
Fortunately, payouts have spiked early in 2021 as oil and gas prices rebounded significantly from pandemic lows. For the first half of 2021, the company has announced distributions of $ 0.451468. Projected for the year, the projected payout of $ 0.903 would translate into a dividend yield of 8.8%.
There is no doubt that Cross Timbers is a high dividend stock. But it has a variable payout that can fluctuate wildly depending almost entirely on the direction of oil and gas prices.
These payments illustrate the variable nature of Cross Timber’s distribution – as it is based on the trust’s ongoing earnings – and the impact of falling oil and gas prices. Given the rebound in oil and gas prices, we expect Cross Timbers to be able to pay at least $ 0.08 per share monthly for the foreseeable future, so the return will still be substantial.
However, we find that the trust is completely dependent on commodity prices over which it has no control. The trust continues to distribute essentially all of its earnings, as it has done since its inception. Dividend coverage will never be strong as Cross Timbers essentially has to distribute all of its income.
Future distribution growth depends on higher distributable income. As a result, the trust’s dividend growth potential is essentially a bet on oil and gas prices. If commodity prices continue to rise, there are good chances for payout growth through 2021.
The bottom line of the Cross Timbers distribution is that it is very unpredictable, and while the headline yield is tempting, keep in mind that any given month’s payout fluctuates significantly depending on commodity prices and production levels. Investors should be aware of the risk and volatility associated with oil and gas license trusts before buying Cross Timbers.
Cross Timbers offers investors a unique opportunity to play with potentially higher oil and gas prices in the future while generating monthly income. At the same time, there are risks and specifics that investors should consider before buying shares in a royalty trust.
Cross Timbers is a micro-cap, which means it is more volatile and traded less than larger companies. It is also a royalty trust that carries its own risks.
After all, Cross Timbers is not a long-term “sleepover” dividend growth stock. Future results depend on oil and gas prices and the actual level of reserves in the properties in which it has an interest.
As such, Cross Timbers is only a recommended stock for investors who accept the risks of royalty trusts and micro-caps.
Thanks for reading this article. Please send feedback, corrections, or questions to [email protected]