Dorchester Minerals: Royalty Trust, 13% Yield (NASDAQ:DMLP)

Are you familiar with Royalty Trusts? The Energy industry has a few of these entities, which lease out land that they own to energy producers, in return for receiving royalties on crude oil and natural gas. These trusts can be an attractive source of income for investors.

Dorchester Minerals, L.P. (NASDAQ:DMLP) is one of the older energy trusts, founded in 1982.

One of the big differences between DMLP and many other energy trusts is that DMLP can acquire new properties in order to increase or maintain its reserves.

Holdings:

DMLP owns properties in 28 states, consisting of producing and nonproducing mineral, royalty, overriding royalty, net profits, and leasehold interests.

In July-September 2023, DMLP acquired 2184 net royalty acres located in three counties in Texas in exchange for ~1.2M common units representing limited partnership interests in the Partnership valued at ~$35.5M.

Its Royalty properties’ oil reserves declined from 7,684 to 7,251 mmbls in 2022, while its natural gas reserves increased from 31,364 to 31,946 mmcf.

NPI – Net Profits Interest increased by 12% in 2022, to 1,669 mmbls; and its natural gas NPI’s increased by 10%.

Total oil reserves decreased by 2.8% in 2022, while total natural gas reserves increased by 3.3%.

Earnings:

Royalties generated 84% of DMLP’s revenues in Q3 ’23, and 74% in Q1-3 ’23. Like other trusts, DMLP has minimal operating and G&A expenses, so most of its income flows through to unitholders. There is non-cash Depreciation and Amortization.

58% of the Q3 ’23 receipts reflected oil sales during June 2023 through August 2023 and natural gas sales during May 2023 through July 2023; and ~42% from prior sales periods. The average indicated prices for oil and natural gas sales cash receipts attributable to the Royalty Properties during the third quarter of 2023 were $64.74/bbl and $1.97/mcf, respectively, vs. $91.49/bbl and $6.55/mcf in Q3 ’22.

The average indicated prices for oil and natural gas sales cash receipts attributable to the NPI properties during the third quarter of 2023 were $61.63/bbl and $1.70/mcf, respectively, vs. $87.87/bbl and $6.40/mcf in Q3 ’22.

As detailed above, much lower oil and natural gas prices decreased DMLP’s revenues, Net Income, EBITDA and Cash Flow in Q1-3 ’23, which was a reversal of the big gains made in 2022.

While DMLP hasn’t yet released its Q4 ’23 report, it did divulge this info on its Q4 ’23 distribution announcement:

“Cash receipts attributable to the Partnership’s Royalty Properties during the fourth quarter totaled ~$28.3. Approximately 72% of these receipts reflect oil sales during September 2023 through November 2023 and gas sales during August 2023 through October 2023, and approximately 28% from prior sales periods. Cash Receipts attributable to the Partnership’s Net Profits Interests during the fourth quarter totaled approximately $4.6 million. Approximately 77% of these receipts reflect oil sales and gas sales during August 2023 through October 2023, and approximately 23% from prior sales periods.”

That ~$33M total indicates a quarterly decline vs. the ~$42M DMLP had in Q3 ’23.

Dividends:

The distribution of $1.007874 per common unit represented activity for the three-month period ended December 31, 2023 and is payable on February 8, 2024 to common unitholders of record as of January 29, 2024.

At its 2/2/24 $31.00 closing price, DMLP’s forward yield is 13%. It has a very high 5-year dividend growth average of over 24%, due to a 128% jump in distributions in 2022 vs. 2021.

DMLP’s partnership agreement requires “that we distribute quarterly an amount equal to all funds that we receive from the Royalty Properties and the NPI (other than cash proceeds received by the Partnership from a public or private offering of securities of the Partnership) less certain expenses and reasonable reserves.” (2022 10K)

Distribution coverage was 1.01X in Q1-3 ’23, much lower than the 1.24X seen in Q1-3 ’22. Full year 2022 coverage was 1.08X.

Taxes:

DMLP issues a K-1 to unitholders at tax time. LP distributions may include Return of Capital, ROC, which offers you a tax deferral benefit, but also decreases your tax basis. There also may UBTI involved. Please consult your tax advisor for more details.

Insiders:

CFO Moriyama bought ~8K units at $28.12, and CEO Ehrmann bought 4450 units at $28.02 in early November. DMLP’s 52-week range is $26.50 – $33.60.

Debt & Liquidity:

DMLP has no debt.

As of September 30, 2023, its NPI was in a surplus position and had outstanding capital commitments, primarily in the Bakken region, equaling cash on hand of $4.9M.

Performance:

We looked at several other energy-related trusts’ dividend yields, trading volume and performance over the past month, quarter, year and year to date.

DMLP is the 2nd largest of the group, with a $1.23B market cap, behind Black Stone Minerals (BSM), $3.4B.

San Juan Basin Royalty (SJT) has the highest dividend yield, at 21.67%. MV Oil Trust (MVO) has the 2nd highest dividend yield, at 13.31%, with DMLP right behind, at 13%. You can see why some income investors favor energy trusts, with most of the dividend yields in excess of 10%.

BSM and SJT have the highest average daily volume by far, at 523K and 458K, respectively, while DMLP averages 83K. VOC Energy Trust (VOC) is the only one in this group with over 1X relative volume, while DMLP is only at 45% of its average volume.

Investors are taking a pause – DMLP is just 7.7% below its 52-week high, the closest to that figure in this group.

So far in 2024, DMLP has lagged PBT, BSM, and CRT, which all have positive price performances, vs. DMLP’s -2.6% mark.

Looking back over the past year, DMLP outperformed this group, with a 7.86% price gain, and a ~20.86% total return. BSM was the only trust in this group with a 1-year price gain, and a positive total return.

Parting Thoughts:

If you’re looking for energy-related income, add DMLP to your watch list, and wait for a significant market pullback before buying units. It’s currently ~15% below its all-time high.

If you’re interested in other high yield vehicles, we cover them every Friday and Sunday in our articles.

All tables furnished by Hidden Dividend Stocks Plus, unless otherwise noted.