Up to date on April eleventh, 2025 by Nathan Parsh
San Juan Basin Royalty Belief (SJT) has a dividend yield of greater than 6%, primarily based on its annualized distributions for 2024.
San Juan Basin has a really engaging payout, contemplating the S&P 500 Index at present has a ~1.4% dividend yield. Meaning San Juan Basin gives about 4 instances as a lot dividend revenue as the typical inventory within the S&P 500.
Like most different shares, San Juan Basin additionally pays its dividend every month, moderately than every quarter. This offers buyers the good thing about extra frequent dividend payouts.
San Juan Basin is considered one of solely 76 month-to-month dividend shares we at present monitor. You possibly can obtain our full record of month-to-month dividend shares (together with necessary monetary metrics like dividend yields and payout ratios) by clicking on the hyperlink beneath:
Nevertheless, San Juan Basin’s dividend is probably not as engaging because it appears. The payout has been slashed repeatedly lately, and the belief hasn’t paid a distribution since April 2024, highlighting that royalty trusts are a extremely dangerous sort of safety.
This text will talk about why buyers needs to be skeptical of royalty trusts like San Juan Basin.
Enterprise Overview
San Juan Basin is a royalty belief established in November 1980. The belief is entitled to a 75% royalty curiosity in varied oil and fuel properties throughout over 150,000 gross acres, within the San Juan Basin of northwestern New Mexico.
On July thirty first, 2017, Hilcorp San Juan LP accomplished its buy of San Juan Basin property from Burlington Assets Oil & Gasoline Firm LP, a subsidiary of ConocoPhillips (COP).
Greater than 90% of the belief’s manufacturing is fuel, with the rest oil. The belief doesn’t have a specified termination date. It’s going to terminate if royalty revenue falls beneath $1,000,000 yearly over two years.
The previous 4 years have been tough for the San Juan Basin. Not surprisingly, this was because of decrease oil and fuel costs. Issues turned much more difficult in 2020, because the coronavirus pandemic resulted in a steep decline in oil and fuel costs.
The common realized worth of pure fuel for the San Juan Basin decreased from $1.79 in 2019 to $1.51 in 2020. The common realized oil worth decreased from $45.11 per barrel in 2019 to $31.47 per barrel in 2020. Consequently, its distributable revenue per unit dipped 9%, from $0.174 in 2019 to $0.159 in 2020. Because of poor money flows, the belief suspended its distribution for six months in 2019 and one other 4 months in 2020.
Fortuitously, the San Juan Basin recovered strongly in 2021 and 2022 due to the restoration of the vitality market from the pandemic. Due to the spectacular rally of the value of pure fuel, which resulted from pent-up demand after the pandemic and tight provide, distributable revenue per unit practically quintupled, from $0.159 in 2020 to $0.77 in 2021. In 2022, the full distributable revenue was $1.66.
Even higher, the value of pure fuel has rallied to new highs following European nations’ sanctions on Russia for its invasion of Ukraine. Europe generates 31% of its electrical energy from pure fuel offered by Russia, however it’s doing its finest to scale back its reliance on Russia. Consequently, there was an enormous improve in LNG exports from the U.S. to Europe. Consequently, the U.S. pure fuel market surged throughout this era.
Nevertheless, 2024 was a tough yr for the belief as whole distributable revenue fell from $1.11 in 2023 to simply $0.11 final yr.
Progress Prospects
There are two vital development catalysts for the San Juan Basin shifting ahead. The primary is increased commodity costs, which might assist the San Juan Basin generate increased money flows. Particularly, increased fuel costs can be an enormous increase for the San Juan Basin since fuel accounts for the overwhelming majority of manufacturing.
The opposite main development catalyst for San Juan Basin might be if the belief’s oil and fuel properties are produced for longer than anticipated. San Juan Basin shouldn’t be precisely certain of the belief’s lifespan. It has employed impartial petroleum engineers, who conservatively estimated that the belief is prone to proceed to provide for no less than one other 10-15 years, however this was in 2011.
These two elements decide whether or not the San Juan Basin is an efficient funding. The belief shouldn’t be permitted to have interaction in any enterprise exercise, which incorporates utilizing any portion of the belief property to accumulate extra properties.
Within the fourth quarter of 2024, the belief reported that fuel manufacturing fell 5% whereas the value of fuel plunged 33% in comparison with the prior yr’s quarter because of a hotter winter. Consequently, the belief didn’t pay any distributions. In reality, San Juan Basin suspended its distributions since Might 2024 because of extra working prices and low fuel costs.
Manufacturing prices totaled $21.7 million ($16.3 million internet to the belief) as of March twenty first, 2025. San Juan Basin is not going to resume distributions till prices average and fuel costs get well. The belief might resume distributions within the upcoming months, however this isn’t assured, particularly if prices stay excessive and costs stay subdued.
If the belief doesn’t have gross income of no less than $1 million in 2025 and 2026, termination provisions might be triggered.
Dividend Evaluation
San Juan Basin’s distributions are categorised as royalty revenue as a belief. Distributions are thought of bizarre revenue and are taxed on the particular person’s marginal tax charge. Since fuel costs are so necessary to royalty trusts’ money circulation, it’s no shock that San Juan Basin’s dividends have declined when fuel costs have declined, reminiscent of from 2014 to 2016 and once more in 2020.
San Juan Basin has made the next distributions for the reason that earlier oil and fuel business downturn:
- 2014 distributions-per-share of $1.2846
- 2015 distributions-per-share of $0.3647
- 2016 distributions-per-share of $0.2989
- 2017 distributions-per-share of $0.8395
- 2018 distributions-per-share of $0.3859
- 2019 distributions-per-share of $0.1737
- 2020 distributions-per-share of $0.159
- 2021 distributions-per-share of $0.77
- 2022 distributions-per-share of $1.57
- 2023 distributions-per-share of $1.11
- 2024 distributions-per-share of $0.11
Regardless of an uptick in distributions in 2017, declining commodity costs have brought about San Juan Basin’s fundamentals to deteriorate steadily since 2014. This, in flip, led to decrease distribution funds.
On the brilliant facet, the San Juan Basin recovered strongly from the pandemic yr and final yr. Nevertheless, within the first 4 months of 2024, it supplied distributions per unit of $0.11. San Juan Basin would pay roughly $0.33 per unit for the complete yr at this charge. This payout degree would signify a yield of 6.4% primarily based on the present unit worth of $5.18.
If oil and fuel costs can improve, San Juan Basin’s distributions might improve to a degree that makes the inventory engaging. For instance, if the belief lasts one other 10 years, buyers will desire a dividend yield nicely in extra of 10% yearly to make San Juan Basin a profitable funding.
After all, there isn’t any assure of an extended life span nor that oil and fuel costs will return to their highs. Consequently, royalty trusts are a very dangerous option to put money into the vitality sector.
Remaining Ideas
Investing within the San Juan Basin proper now could be basically betting on two issues: excessive oil and fuel costs and a longer-than-expected lifespan of the belief.
Royalty trusts could be a good supply of dividend revenue due to their excessive yields. Nevertheless, buyers should make sure the belief’s property don’t run out earlier than the preliminary funding is paid again. San Juan Basin buyers will want the extraordinarily excessive costs of pure fuel and oil to stay in place for years to make the inventory a great funding.
We view this favorable state of affairs as extremely unlikely. As such, buyers in search of much less threat from a dividend inventory are inspired to keep away from royalty trusts like San Juan Basin.
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