San Juan Basin Royalty Trust (NYSE: SJT) is an unmanaged trust that receives royalties on the production and sale of oil and natural gas from the San Juan Basin in northern New Mexico.
Some of the financial websites show that the trust yields as much as 25%.
San Juan Basin Royalty Trust pays a monthly dividend. If you annualize May’s $0.0527 per share dividend, you get a yield of 7.6%.
The reason for the sky-high yield noted by the websites is March’s $0.4097 per share dividend and February’s $0.2498 per share payout.
You don’t have to worry about the company paying out more in dividends than it takes in. Royalty trusts basically just pass the royalties they collect, minus any small administrative costs, on to investors.
There’s no management team trying to gain confidence from Wall Street or entice shareholders to stick around by paying a too-high dividend.
If natural gas prices rise and royalties increase, so will the payments to investors. And if gas prices decline, the dividend will too.
That makes this monthly dividend variable. Each month’s payment will be different from the last one. And you can see in the chart below how wildly the dividend fluctuates.
You don’t have to be a trained financial analyst to understand that if a company’s dividend is variable, it is likely to be reduced at some point. A reduction could come after a massive increase, like we saw in San Juan Basin Royalty Trust’s dividend in late 2022 and early 2023, or it might come during a period of difficulty for the company.
Regardless, with a variable dividend, you can never rely on the payout staying the same or rising from month to month, quarter to quarter or year to year.
San Juan Basin Royalty Trust’s dividend cannot be considered safe.
Dividend Safety Rating: F
— Marc Lichtenfeld
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Source: Wealthy Retirement