A First Look at San Juan Basin Royalty Trust (SJT) Yielding 6.1%

First look at San Juan Basin Royalty Trust (SJT).  A reader requested that I take a look at SJT.  I accepted because I hadn’t noticed this company in my previous screenings.

San Juan Basin Royalty Trust is the largest energy sector royalty trust in the United States. It owns a 75% net profit interest in a large number of natural gas properties in the San Juan Basin of New Mexico. About 98% of the royalties San Juan collects come from natural gas, with the balance coming from oil. At year-end 2008, San Juan reported reserves of 158 billion cubic feet of natural gas equivalent.

San Juan Basin Wikipedia entry: http://en.wikipedia.org/wiki/San_Juan_Basin

The future of natural gas: New technologies have dramatically increased the size of natural gas reserves.  More supply at the current price than demand will drive the price down further.  I’m just starting my investigation of natural gas as the follow on fuel after gasoline becomes more expensive.  You must guess correctly on oil’s replacement to make huge profits.  Lobbyists can buy off congressmen to appoint coal, uranium, or any myriad of so-called “green” technologies as the replacement to oil.

Here are some links on the future of natural gas: http://www.google.com/search?q=the+future+of+natural+gas&rls=com.microsoft:*&ie=UTF-8&oe=UTF-8&startIndex=&startPage=1  The New York Times and the Brookings institute are both socialist organizations.  I haven’t read any of these articles yet.

Dividend Record:

SJT has been paying monthly dividends since 1989.  There have been a few monthly gaps.  The stock has dividend gains and cuts almost monthly because it appears to payout 100% of earnings in the form of dividends.

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Dividend: $0.12 per month

Dividend yield: 6.1% @ $0.12 per month

Dividend payout ratio: 100%

            EPS       Net inc.             Adj. EPS            Shares

2006     $2.92    $135.867 M       $2.92                46.61 M

2007     $2.43    $113.221 M       $2.43                46.61 M

2008     $3.07    $143.081 M       $3.07                46.61 M

2009     $0.65    $ 30.173 M        $0.65                46.61 M

2010     $1.68    $ 78.356 M        $1.68                46.61 M

Five year average adjusted earnings are $2.15

Consider buying at or below $25.80 (12 times average adjusted earnings)  SJT is value priced, but its balance sheet stinks.

Consider selling at or above $43.00 (20 times average adjusted earnings)

Strength of balance sheet: Poor and getting worse (You need to understand why the balance sheet is going down.  I haven’t read SJT’s financial statements yet.  I’m guessing that they are constantly depleting the natural gas reserves.  That would reduced their assets year after year.  A careful study is required, but this isn’t good.)

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Book value per share: $0.32

Price to book value: 78.13 (bad – very bad.  Red flag)

Current ratio: 1.00 (greater than 2.0 is good)

Quick ratio: 1.00 (greater than 1.0 is good)

Conclusion: Don’t buy until you understand why the balance sheet stinks.  I will attempt to discover the source of the declining balance sheet.

Disclosure: I don’t own San Juan Basin Royalty Trust (SJT).

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Published in: on September 5, 2011 at 11:07 am  Leave a Comment  

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