the div is going lower than 6 cents in a couple months. wait for the low teens to start building a position. even then be careful... as more and more shale keeps coming online, the prices will stay low. If we have a cool summer storage will fill and gas will tank even further as excess gas gets flared rather than sold.
Agree. I am starting to monitor prices on several royalty trusts, especially relative to the monthly distribution and overall natural gas and oil prices.
I agree that if natural gas stays low for 5 or 6 more months, the distributions, which are usually 1-2 months lagging(i.e. distribution this month is from sales 2 months ago at the then prevailing market prices) will shake out a lot of weak hands as the yield drops. The price will likely drop as the montly distributions drop and at some point, when gas bottoms, that will be the time to buy the trusts. If/when gas prices recover, you will have a nice tailwind which will almost certainly result in both modest distriibution increases as well as capital gains.
These long lived trusts are, in my opinion, far superior to many of the newer trusts which are far more financially "rigged" such as the ones put out by SandRidge and Chesapeake.
Most of these early 80's trusts will still be around 20 yrs from now and if commodity prices keep climbing, their reserves will likely continue to at least only decrease moderately. Gotta laugh at how R/P stays flat for most of these trusts for years and years..
No one is going to get rich buying these, but at the right price and yield, you can make very good income at relatively low risk to capital.
It is looking like, if natural gas stays in the low $2/mcf range, SJT will average around $.75-$.85/unit/yr in royalties.
I think people can argue about what an acceptable yield is (i.e. multiple to put on that earnings stream) but I believe a 7-8% yield is appropriate. One could argue that with no debt and no real operating activity, it is less risky than an MLP, though without the ability to acquire additional reserves.
If we assume a $.75/unit/yr distribution and a 7.5% yield, SJT would need to trade around $10.00.
Now clearly natural gas may recover and perhaps others believe a yield lower than 7.5% is acceptable..but it appears to me that SJT has more room to fall. If gas stays flat for 2 or 3 yrs, not only will the distribution stay low but also there will be fewer new wells drilled in the trust property which means volumes will begin to taper off slightly.
I think the trust is attractive at $10, but find it too risky at $16
If you have an interest in royalty trusts, consider FRHLF and DMLP.
Both are pretty oily for production and should benefit from pipeline expansions to reduce transport costs. The last DMLP distribution announcenent is unlikely to be repeated for a while as it had some unusual bonuses built into it. However it is gaining revenues as more wells are drilled on their acreage.