Updated on April 11th, 2025 by Nathan Parsh
San Juan Basin Royalty Trust (SJT) has a dividend yield of more than 6%, based on its annualized distributions for 2024.
San Juan Basin has a very enticing payout, considering the S&P 500 Index currently has a ~1.4% dividend yield. That means San Juan Basin offers about four times as much dividend income as the average stock in the S&P 500.
Like most other stocks, San Juan Basin also pays its dividend each month, rather than each quarter. This gives investors the benefit of more frequent dividend payouts.
San Juan Basin is one of only 76 monthly dividend stocks we currently track. You can download our full list of monthly dividend stocks (along with important financial metrics like dividend yields and payout ratios) by clicking on the link below:
However, San Juan Basin’s dividend may not be as attractive as it seems. The payout has been slashed repeatedly in recent years, and the trust hasn’t paid a distribution since April 2024, highlighting that royalty trusts are a highly risky type of security.
This article will discuss why investors should be skeptical of royalty trusts like San Juan Basin.
Business Overview
San Juan Basin is a royalty trust established in November 1980. The trust is entitled to a 75% royalty interest in various oil and gas properties across over 150,000 gross acres, in the San Juan Basin of northwestern New Mexico.
On July 31st, 2017, Hilcorp San Juan LP completed its purchase of San Juan Basin assets from Burlington Resources Oil & Gas Company LP, a subsidiary of ConocoPhillips (COP).
More than 90% of the trust’s production is gas, with the remainder oil. The trust does not have a specified termination date. It will terminate if royalty income falls below $1,000,000 annually over two years.
The past four years have been difficult for the San Juan Basin. Not surprisingly, this was due to lower oil and gas prices. Things became even more challenging in 2020, as the coronavirus pandemic resulted in a steep decline in oil and gas prices.
The average realized price of natural gas for the San Juan Basin decreased from $1.79 in 2019 to $1.51 in 2020. The average realized oil price decreased from $45.11 per barrel in 2019 to $31.47 per barrel in 2020. As a result, its distributable income per unit dipped 9%, from $0.174 in 2019 to $0.159 in 2020. Due to poor cash flows, the trust suspended its distribution for 6 months in 2019 and another 4 months in 2020.
Fortunately, the San Juan Basin recovered strongly in 2021 and 2022 thanks to the recovery of the energy market from the pandemic. Thanks to the impressive rally of the price of natural gas, which resulted from pent-up demand after the pandemic and tight supply, distributable income per unit nearly quintupled, from $0.159 in 2020 to $0.77 in 2021. In 2022, the total distributable income was $1.66.
Even better, the price of natural gas has rallied to new highs following European countries’ sanctions on Russia for its invasion of Ukraine. Europe generates 31% of its electricity from natural gas provided by Russia, but it is doing its best to reduce its reliance on Russia. As a result, there has been a huge increase in LNG exports from the U.S. to Europe. Consequently, the U.S. natural gas market surged during this period.
However, 2024 was a rough year for the trust as total distributable income fell from $1.11 in 2023 to just $0.11 last year.
Growth Prospects
There are two significant growth catalysts for the San Juan Basin moving forward. The first is higher commodity prices, which would help the San Juan Basin generate higher cash flows. Specifically, higher gas prices would be a huge boost for the San Juan Basin since gas accounts for the vast majority of production.
The other major growth catalyst for San Juan Basin will be if the trust’s oil and gas properties are produced for longer than expected. San Juan Basin is not exactly sure of the trust’s lifespan. It has hired independent petroleum engineers, who conservatively estimated that the trust is likely to continue to produce for at least another 10-15 years, but this was in 2011.
These two factors determine whether the San Juan Basin is a good investment. The trust is not permitted to engage in any business activity, which includes using any portion of the trust estate to acquire additional properties.
In the fourth quarter of 2024, the trust reported that gas production fell 5% while the price of gas plunged 33% compared to the prior year’s quarter due to a warmer winter. As a result, the trust did not pay any distributions. In fact, San Juan Basin suspended its distributions since May 2024 due to excess operating costs and low gas prices.
Production costs totaled $21.7 million ($16.3 million net to the trust) as of March 21st, 2025. San Juan Basin will not resume distributions until costs moderate and gas prices recover. The trust could resume distributions in the upcoming months, but this is not guaranteed, especially if costs remain high and prices remain subdued.
If the trust does not have gross revenue of at least $1 million in 2025 and 2026, termination provisions will be triggered.
Dividend Analysis
San Juan Basin’s distributions are classified as royalty income as a trust. Distributions are considered ordinary income and are taxed at the individual’s marginal tax rate. Since gas prices are so important to royalty trusts’ cash flow, it is no surprise that San Juan Basin’s dividends have declined when gas prices have declined, such as from 2014 to 2016 and again in 2020.
San Juan Basin has made the following distributions since the previous oil and gas industry 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
Despite an uptick in distributions in 2017, declining commodity prices have caused San Juan Basin’s fundamentals to deteriorate steadily since 2014. This, in turn, led to lower distribution payments.
On the bright side, the San Juan Basin recovered strongly from the pandemic year and last year. However, in the first four months of 2024, it offered distributions per unit of $0.11. San Juan Basin would pay approximately $0.33 per unit for the full year at this rate. This payout level would represent a yield of 6.4% based on the current unit price of $5.18.
If oil and gas prices can increase, San Juan Basin’s distributions could increase to a level that makes the stock attractive. For example, if the trust lasts another 10 years, investors will want a dividend yield well in excess of 10% annually to make San Juan Basin a successful investment.
Of course, there is no guarantee of a longer life span nor that oil and gas prices will return to their highs. As a result, royalty trusts are a particularly risky way to invest in the energy sector.
Final Thoughts
Investing in the San Juan Basin right now is essentially betting on two things: high oil and gas prices and a longer-than-expected lifespan of the trust.
Royalty trusts can be a good source of dividend income thanks to their high yields. However, investors must ensure the trust’s assets do not run out before the initial investment is paid back. San Juan Basin investors will need the extremely high prices of natural gas and oil to remain in place for years to make the stock a good investment.
We view this favorable scenario as highly unlikely. As such, investors looking for less risk from a dividend stock are encouraged to avoid royalty trusts like San Juan Basin.
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.
Thanks for reading this article. Please send any feedback, corrections, or questions to [email protected].
