Monthly Dividend Stocks: Sabine Royalty Trust (NYSE:SBR)

Sabine Royalty Trust (NYSE:SBR) — one of the approximately two dozen of publicly-traded oil and gas royalty trusts, as well as one of the monthly dividend stocks — offers investors an above-industry average yield of more than 7%.

In addition to a high yield generally associated with royalty trusts, the Sabine Royalty Trust also offers a steady flow of dividend income associated with monthly dividend stocks. The dividend distribution amount is driven by the monthly financial results. Therefore, the dividend payout level fluctuates from month to month, as well as annually. However, just over the past decade, the instances of total annual dividend payouts exceeding the prior year’s payout outnumbered the drops in annual dividend payouts by a six-to-four margin.

Royalty trusts generally offer safe long-term opportunities to investors seeking alternatives for traditional investment vehicles. These trusts are publicly traded corporations that invest in commodities such as oil, natural gas or metals. Most royalty trusts are located in North America. The trusts generally do not run their own mining and drilling operations. Instead, the trust grants outside drilling and mining companies exploration and production rights in exchange for royalty payments.

This arrangement allows a royalty trust to operate very efficiently with very few employees and generate high levels of income. Most of this income is redistributed to investors as dividends, which is the primary lure of these investments. An additional benefit of investing in royalty trust is a direct line of investment into commodity sources, without the business middlemen of an energy company. Investors directly own a piece of the underlying properties. Furthermore, as most trusts are invested in multiple types of commodities, royalty trusts offer easy portfolio diversification for investors looking to allocate a portion into commodities.

Like many other monthly dividend stocks, Sabine Royalty Trust follows a set schedule of cash dividend payouts. The ex-dividend date generally occurs around the middle of the month. All investors that claim unit ownership prior to the specific ex-dividend date, become eligible to receive the subsequent installment of dividend distributions on the next pay date, which occurs at the end of each month — approximately two weeks after the ex-dividend date. The trust distributed its most recent round of dividends on June 28, 2019. Therefore, interested investors should take unit ownership before mid-July to start receiving payouts from one of the monthly dividend stocks in late July.

Sabine Royalty Trust (NYSE:SBR)

Based in Dallas, Texas, and formed in December 1982, the Sabine Royalty Trust is an express trust formed by the Sabine Corporation Royalty Trust Agreement between Sabine Corporation and InterFirst Bank Dallas, N.A. as a trustee. The trust agreement transferred certain royalty and mineral interests in producing and proved undeveloped oil and gas properties from Sabine Corporation to the Trust. The trust currently owns royalty rights in properties across Florida, Louisiana, Mississippi, New Mexico, Oklahoma and Texas. In addition to cash held for the payment of expenses and liabilities, as well as for distribution to the trust’s unit holders the aforementioned royalty interests — including landowner’s royalties and overriding royalty interests — are the trust’s only assets. The trust’s revenues depend directly on the price of oil and gas, as well as the quantities produced. The Pacific Enterprises Oil Company acquired the Sabine Corporation in 1988 and both entities effectively merged into PEC Minerals on July 31, 2006. Simmons Bank is the current trustee for the Sabine Royalty Trust.

Monthly Dividend Stocks: Sabine Royalty Trust Dividends

The company’s most recent monthly payout of $0.359 is nearly 150% higher than the $0.146 dividend distribution from the previous period. However, since the commodity price and production drive the dividend distribution amount, price and quantity fluctuations determine monthly dividend payout amounts. Therefore, annualized dividend payouts are a better indicator of long-term dividend income potential.

While still exhibiting fluctuations from year to year, annual payouts are more stable than monthly distributions. However, trust still paid lower annual dividend than the prior year six times over the past two decades. Conversely, the trust’s annual dividends were higher than the previous year’s distribution 14 times during the same period, or 70% of the time.

The current $3.55 annualized dividend corresponds to a 7.3% forward dividend yield, which is 2.7% above the trusts own 7.13% yield average over the past five years. Additionally, the trust’s current yield is also nearly 140% higher than the 3.08% simple average yield of the overall Financial sector. Also, the current 7.3% yield outperformed the 5.24% average yield of the Diversified Investments industry segment by 40%, as well as outperformed the 6.9% yield average of the segment’s only dividend paying companies by 6.2%.

Even with payout fluctuations, the trust increased its annual dividend distribution amount 140% over the past 20 years. This enhancement corresponds to an average dividend growth rate of 4.5% per year. Furthermore, the trust has enhanced its annual payout over the past two consecutive years. The two-year gain of 84% is equivalent to an average annual growth rate of 22.4%.

Monthly Dividend Stocks: Sabine Royalty Trust Share Price

While the current share price is trading at levels similar to late 2005, the stock made substantial gains in 2019 after a pullback in the prior year. The share price entered the trailing 12-month period at the beginning of July 2018 on a downtrend. Riding that trend and pressured by the overall market correction in late 2018, the share price lost a third of its value in the second half of the year and hit its 52-week low of $31.62 on December 24, 2018.

However, free of the downward pressure from the overall market decline, the trust’s share price recovered fully by the beginning of April 2019 and continued higher towards its 52-week high of $51.90 on April 24, 2019, for a total gain of nearly 65% over the December low. Since peaking in late April, the share price pulled back 6.6% to close on June 28, 2019, at $48.50. While still 18% lower than it was five years ago, the June 28 closing price was 3% higher than one year earlier and 53.4% above the 52-week from late-December 2018.

Dividend income payouts managed to offset the share price decline over the last five years to deliver a 4% total return for the five-year period. However, the trust rewarded its unitholders with a total return of nearly 10% over the trailing 12 months, as well as a 72% total return over the past three years.

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