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SJT Stock’s Outlook Is Solid: Here’s Why
If you’re bullish on oil and natural gas stocks and want to get paid monthly, you might want to keep an eye on San Juan Basin Royalty Trust (NYSE:SJT).
The trust has a 75% net overriding royalty interest in certain oil and gas leasehold and royalty interests in the San Juan Basin of New Mexico. The subject interests are owned by Hilcorp San Juan L.P. (Source: “2023 First Quarter,” San Juan Basin Royalty Trust, May 16, 2023.)
Virtually every penny that comes from the company’s oil and gas leaseholds goes directly to San Juan Basin Royalty stockholders as monthly dividends. Rising oil prices and high demand should help juice the stock’s monthly dividends. As of this writing, SJT stock pays dividends of $2.11 per unit, for a current inflation-crushing yield of 24.8%.
Unlike actively managed trusts, in which a management team can grow the company’s assets, San Juan Basin Royalty Trust doesn’t engage in any new business or commercial activity, nor can it use any portion of the trust to acquire additional properties.
What this means is that the company’s assets (wells) will eventually run dry, but that won’t happen for quite some time. The trust has enough energy reserves to run for at least another 10 to 15 years—probably more. The number of years could increase as drilling technology improves.
This means San Juan Basin Royalty Trust can safely provide investors with reliable, ultra-high-yield payouts for years to come.
Oil Prices Set to Rise
Although oil prices are down from their 2022 highs of $130.00 per barrel—currently hovering around $70.00 per barrel—the outlook for West Texas Intermediate (WTI) crude oil is solid, in spite of fears of an upcoming recession.
The U.S. Energy Information Administration (EIA) recently increased its average Brent crude oil spot price forecast for 2023 and 2024. The government agency now expects the Brent spot price to average $79.54 per barrel this year and $83.51 per barrel next year. In May, it had projected that the Brent spot price would average $78.65 per barrel this year and $74.47 per barrel in 2024. (Source: “USA EIA Hikes Up 2023 and 2024 Brent Oil Price Forecasts,” Rigzone, June 9, 2023.)
The EIA also raised its 2023 forecast for WTI crude oil prices to $74.60 a barrel, up by 1.3% from its May forecast. For 2024, the agency increased its forecast to $78.51, up by 13% from its May forecast.
Why?
Oil production cuts by the Organization of the Petroleum Exporting Countries Plus (OPEC+), tight energy supplies, and high demand from China, India, and the U.S. Department of Energy.
The department is looking to refill its Strategic Petroleum Reserve (SPR), which is the largest publicly known emergency supply of oil. The SPR currently holds 357 million barrels of crude oil and has an authorized storage capacity of 714 million barrels. (Source: “SPR Quick Facts,” U.S. Department of Energy, last accessed June 13, 2023.)
In May, the Department of Energy announced its plan to refill the emergency stockpile after making a record release of oil from that stockpile following Russia’s invasion of Ukraine in 2022. (Source: “US to Buy 3 Million Barrels to Refill Emergency Oil Reserve,” Reuters, May 15, 2023.)
On June 9, the U.S. Department of Energy said it awarded supply contracts to five companies to deliver three million barrels of crude oil to the SPR in August. It also launched a solicitation for another three million barrels to be delivered in September. (Source: “US Buys Over 3 Million Barrels for Oil Stockpile, Announces Plan for 3 Million More,” Reuters, June 9, 2023.)
That’s all good news for North American oil and gas companies like San Juan Basin Royalty Trust
First-Quarter Royalty Income Jumped 144% Year-Over-Year
For the first quarter ended March 31, San Juan Basin Royalty announced that its royalty income distributed by Hilcorp San Juan L.P. was approximately $36.4 million. That was up by 144% from $14.9 million in the same period of 2022. (Source: San Juan Basin Royalty Trust, May 16, 2023, op. cit.)
The total distributable income in the first quarter, which is the amount that the trust paid to unitholders from its royalty income, minus expenses and any changes in cash reserves, increased by 150% year-over-year to $36.0 million, or $0.771771 per unit.
| Period in 2023 | Distributable Income per Unit |
| January | $1.11225 |
| February | $0.249833 |
| March | $0.409688 |
| First Quarter | $0.771771 |
San Juan Basin Royalty Stock’s Dividend History
Most companies’ dividends are pretty consistent, but that hasn’t been the case with San Juan Basin Royalty Trust.
The company’s monthly distribution has fluctuated based on oil production and prices, which are fueled by supply and demand. In April, the trust declared a monthly cash distribution of $4.8 million, or $0.103807 per unit. This was up from $3.8 million, or $0.082883 per unit, in April 2022. In May, management declared a distribution of $2.5 million, or $0.052724 per unit. This was down from $4.3 million, or $0.091781 per unit, in May 2022. (Source: “Cash Distributions,” San Juan Basin Royalty Trust, last accessed June 13, 2023.)
As you can see in the following table, SJT stock’s annual payout more than doubled from 2021 to 2022 and almost flatlined in 2020 during the COVID-19 pandemic. In 2020, San Juan Basin suspended its dividends for four months. That wasn’t a total surprise; the pandemic shuttered the global economy, and marine ships were being used to stockpile oil and gas.
| Year | Dividend Per Unit |
| 2022 | $1.66 |
| 2021 | $0.77 |
| 2020 | $0.15 |
| 2019 | $0.17 |
| 2018 | $0.35 |
| 2017 | $0.83 |
| 2016 | $0.29 |
| 2015 | $0.36 |
| 2014 | $1.28 |
(Source: Ibid.)
This all means investors need to pay attention to what’s going on in the energy sector. San Juan Basin Royalty stock isn’t the kind of stock you can just buy and forget about.
SJT Stock’s Recent Share-Price Performance
The recent economic tailwinds have been favoring San Juan Basin Royalty Trust. This, however, hasn’t trickled down to San Juan Basin Royalty stock’s price yet. As of this writing, SJT stock is down by about 19% year-to-date and 25% year-over-year.
The below chart shows that San Juan Basin Royalty stock can really move under the right conditions. Between March 2020 and August 2022, the company’s units soared by 392%. In 2023, SJT stock has traded lower. Not even a massive monthly distribution has been able to generate much capital appreciation.
That, of course, has more to do with investor pessimism about the economy than anything going on at San Juan Basin Royalty Trust. That sentiment could change once inflation is under control, interest rate hikes are a thing of the past, and fears of a recession are gone.
Until then, the trust continues to report solid monthly financial results and pay frothy monthly dividends.
Chart courtesy of StockCharts.com
The Lowdown on San Juan Basin Royalty Trust
San Juan Basin Royalty stock is a great oil and gas stock that provides investors with long-term capital appreciation and monthly ultra-high-yield dividends.
In terms of share price, San Juan Basin Royalty Trust hasn’t performed very well over the last few months, but that should change once high inflation and fears of a recession are put to rest. Until then, dividend hogs can find solace in SJT stock’s inflation-crushing dividends.