Monthly Dividend Stock In Focus: Permian Basin Royalty Trust

Updated on April 9th, 2025 by Felix Martinez

Income investors often find high-yielding stocks attractive due to the income they can produce. But sometimes, the need for income can blind investors to the company’s issues. If this is the case, investors can be blindsided when the company cuts its dividend.

The same can be said for monthly dividend-paying companies. Investors might overlook a company’s weak fundamentals when obtaining monthly dividend payments. Monthly dividend stocks can be appealing as they create more regular cash flow for investors.

We cover all 76 monthly dividend stocks. You can download our full Excel spreadsheet of all monthly dividend stocks (along with metrics that matter like dividend yield and payout ratio) by clicking on the link below:

But investors shouldn’t buy a high-yield monthly dividend-paying stock simply because of its monthly payments. This is particularly true for oil and gas royalty trusts.

Permian Basin Royalty Trust (PBT) fits the description of a dividend stock with a questionable outlook. Distributions vary on a month-to-month basis based on profitability. Shares yield 5.1% based on its dividends over the past twelve months. We note, however, that dividends are highly volatile and subject to change.

This article will look at Permian Basin’s business, growth prospects and dividend to show why investors should avoid this stock.

Business Overview

Permian Basin holds overriding royalty interests in several oil and gas properties in the United States. The trust is a small-cap stock with a market capitalization of $419 million. The trust has oil and gas-producing properties in Texas.

The trust was established in 1980 and has a 75% net profit royalty interest in the Waddell Ranch properties. These properties consist of over 300 net-productive oil wells, over 100 net-producing gas wells, and 120 net injection wells.

Permian Basin also holds a 95% net profit royalty interest in the Texas Royalty Properties, which consist of approximately 125 separate royalty interests across 33 counties in Texas covering 51,000 net producing acres.

The trust’s assets are static, so it cannot add new properties to its portfolio.

Growth Prospects

As an oil and gas trust, it goes without saying that Permian Basin will perform in direct relation to oil and natural gas prices. Investments like Permian Basin are designed as income vehicles. Higher energy prices will likely lead to higher royalty payments, driving up demand for units. In the same way, lower energy prices will lead to lower dividend payments.

Distributions are based on the prices of natural gas and crude oil. Permian Basin is impacted in two ways when the price of either declines. First, distributable income from royalties is reduced, lowering dividend payments. In addition, plans for exploration and development may be delayed or canceled, which could lead to future dividend cuts.

For the quarter ending September 30, 2024, the Trust reported $8.37 million in royalty income, up from $3.32 million in Q3 2023. This increase was due to the removal of a deficit at Waddell Ranch, which had previously halted royalty payments. The average realized oil prices for Waddell Ranch were $79.91 per barrel and gas prices were $1.19 per Mcf, while Texas Royalty properties saw oil at $79.06 per barrel and gas at $10.54 per Mcf. Delayed proceeds of $2.18 million from June and $267,781 from September were included in the Q3 distribution.

Interest income for Q3 2024 rose to $54,534 from $24,119, driven by longer investment periods. Expenses increased to $367,625 from $139,520 due to higher professional service costs. Distributable income for Q3 2024 was $8.05 million, or $0.17 per Unit, compared to $3.2 million, or $0.07 per Unit, in 2023. Blackbeard’s failure to provide timely production data has caused delays in royalty calculations.

For the nine months ended September 30, 2024, royalty income totaled $23.18 million, up from $14.6 million in 2023. Interest income more than doubled to $122,688, and expenses rose to $1.32 million. Distributable income for the nine months was $21.98 million, or $0.47 per Unit, compared to $13.7 million, or $0.29 per Unit, in 2023. Delays in data from Blackbeard continue to impact distributions.

Source: Investor presentation

Despite disappointing distributions in recent years, which were impacted by high operating expenses on the Waddell Ranch properties, PBT has often increased its distributions. The rally of the oil price has resulted from the recovery of global demand from the pandemic, tight global supply, and the invasion of Russia in Ukraine.

The rally of the price of natural gas has resulted from the sanctions of western countries on Russia. Europe, which generates 31% of its electricity from natural gas provided by Russia, is currently doing its best to diversify away from Russia. As a result, there has been a huge increase in the number of LNG cargos directed from the United States to Europe. As a result, the U.S. natural gas market has become exceptionally tight, and hence, the price of U.S. natural gas has rallied to a 13-year high lately. Overall, PBT cannot hope for a more favorable business environment than the current one.

Thanks to the recovery in commodity prices and ongoing geopolitical uncertainty, we expect PBT to continue generating solid results for the foreseeable future.

On the other hand, given the significant cyclicality of these prices, investors should keep conservative growth expectations from PBT. Moreover, PBT suffers from the natural decline of its fields in the long run. During the last six years, its oil and gas production has decreased at an average annual rate of 6% and 2%, respectively. The natural decline of output is a strong headwind for future results.

Dividend Analysis

Royalty trusts are usually owned for their dividends. These investments are not likely to have multiple decades of dividend growth like the more well-known dividend-paying companies such as Johnson & Johnson (JNJ) or Procter & Gamble (PG). That is because trusts like Permian Basin depend entirely on the prices of oil and gas to determine dividend payments.

Listed below are the trust’s dividends per share over the last seven years:

2014 dividends per share: $1.02
2015 dividends per share: $0.34 (67% decline)
2016 dividends per share: $0.42 (24% increase)
2017 dividends per share: $0.63 (50% increase)
2018 dividends per share: $0.66 (5% increase)
2019 dividends per share: $0.42 (36% decline)
2020 dividends per share: $0.235 (44% decline)
2021 dividends per share: $0.23 (2% decline)
2022 dividends per share: $1.1487 (399% increase)
2023 dividends per share: $.60 (48% decline)
2024 dividends per share: $.55 (8% decline)

Dividends come directly from royalties, so higher oil and gas prices will likely lead to distribution growth. Given this, it shouldn’t come as a surprise that Permian Basin shareholders saw a significant decline in dividends during the 2014 to 2016 oil market downturn.

As oil prices stabilized following this downturn, dividends returned to growth. As you can see, dividend growth was extremely high as energy prices improved.

Annualized, this would come out to a distribution of $0.55 per share for the full year. This would mark a decrease from the prior year, but it would still be significantly higher than the distribution in 2021.

Based on the recent share price, this expected dividend per share yields 5.1%. While the yield compares favorably to the 1.5% average yield of the S&P 500 Index, it is also a good yield for an oil and gas royalty trust, which carries much greater risk than the S&P 500.

Final Thoughts

Monthly dividend-paying stocks can help investors even out cash flows compared with stocks that follow the traditional quarterly payments. Monthly payments can also help investors compound income at a faster rate.

High-yield stocks can provide investors with more income, which is important to those investors living off dividends in retirement. Permian Basin does offer a yield higher than that of the market index.

Investors with a higher appetite for risk might feel that the large dividend raises expected amid favorable commodity prices and the 5.1% yield are a solid tradeoff for the steep declines that occur when energy prices fall.

That said, Permian Basin does offer a monthly dividend but doesn’t provide certainty of what the payment may look like. The dividend payments rely totally on the price of oil and gas. When one or both are down, so are dividend payments. Investors who need a steady, reliable income are strongly encouraged to invest elsewhere.

Don’t miss the resources below for more monthly dividend stock investing research.

And see the resources below for more compelling investment ideas for dividend growth stocks and/or high-yield investment securities.