From the investments on our recommended list, PermRock Royalty Trust (PRT) is a unique income investment vehicle; as a royalty trust it is not a company and it has no business operations, observes income expert Tim Plaehn, editor of The Dividend Hunter.
The trust receives 80% of the net profits from oil and natural gas (primarily oil) production from a dedicated acreage in the Permian Basin. The production operations are managed by Boaz Energy II, LLC. Boaz receives the other 20% of the net profits.
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The monthly distributions will fluctuate based on the levels of production (which are fairly stable) and the prices received for the oil and natural gas (which are not stable). Distributions for a certain month’s production are paid three months later.
That means the March distribution was based on the December production out of the dedicated acreage. The price of oil crashed in November and December 2018. This explains why the PRT distributions have stepped down each of the last two months.
However, crude oil has recovered and is almost back up to $60 per barrel. It is likely the $0.41 per unit distribution paid in March will be the low point in the current energy price cycle.
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Because of how the trust operates, I view this investment as a long-term hedge against higher energy prices. I do expect oil to be significantly more expensive in the future.
I keep track of the oil supply and demand forces, and the fundamentals favor a continued uptrend for the value of crude oil. As an investor in PRT you must understand that the unit price and distribution are very variable, more so than with other stocks in our portfolio.
If you bought PRT at higher prices (as I did) now is a good time to average down before the distributions start to again increase. The next payout announcement will come this week. Buy or add PRT units up to $8.00.
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