Sabine Royalty Trust Investment: Trusts/Mutual FundKey arguments in support of the idea.
▪ Rising Oil and Natural Gas Prices.
▪ High Dividend Yield.
Investment Thesis
Sabine Royalty Trust owns land plots with oil and natural gas fields in Florida,
Louisiana, Mississippi, New Mexico, Oklahoma, and Texas. SBR obtains royalties
from companies that extract hydrocarbons on its lands. The Company was
founded on December 31, 1982, and is headquartered in Dallas, Texas. Its business
is not geographically diversified: 100% of revenue is generated in the United States.
In our opinion, Sabine Royalty Trust shares have growth potential for several
reasons:
Rising Oil and Natural Gas Prices. Oil prices fell in the second half of spring and
are now 10% below their local highs seen in April. We expect a deficit in the global
oil market and price increases in July-August due to high seasonal demand for oil
products. A significant factor will be the decision of OPEC+ countries to extend
voluntary production cuts of 2.2 million barrels per day (bpd) until the end of the
third quarter, despite OPEC forecasting oil demand growth of 1.2 million bpd in Q3
2024.
In contrast to oil, natural gas prices have shown a recovery, reaching $3 per
mmBtu in June, and were 23% above last year's level at the market close on June
14. Natural gas prices could rise to $3.5 per mmBTU (up 20% from current levels)
during the summer months. Rising average daily temperatures increase natural gas
demand from power stations. According to the updated forecast, the US
Department of Energy expects natural gas demand from power stations to rise by
16% m/m and 21% m/m to 38.7 and 46.8 billion cubic feet per day (Bcf/d) in June
and July, respectively.
High Dividend Yield. Sabine Royalty Trust pays dividends every month. In June, the
dividend was $0.538 per share. The yield to the current stock price is 10.2% per
annum. In our opinion, the proximity of the ex-dividend date (mid-July) may
prompt a rally in SBR stocks. Besides, the Company boasts zero debt, which means
that it is financially stable and can afford to allocate most of its earnings to
dividends.
The target price for SBR shares is $68.9, the rating is Buy. We recommend setting a
stop-loss order at $58.9 per share.
