Hugoton Royalty Trust
Royalty trusts — which differ in structure from their former Canadian cousins — generate dividend income from the development of natural resources such as coal, natural gas, and crude oil. These cash flows are subject to the prices of the underlying commodity. If natural gas is at all-time highs, the dividends will reflect that. With natural gas prices rising, the time could be good to pounce on some of the trusts focused on natural gas.
Holding an 80% royalty on natural gas properties in the rich Hugoton Natural Gas Area, the Hugoton Royalty Trust (HGT) allows investors to play one of the largest natural gas fields in the country. HGT has interests in properties located in Kansas, Oklahoma and Wyoming.
Originally set up by XTO Energy — before Exxon (XOM) snagged it — the trust has been steadily paying monthly dividends since 1999. Those dividends have been increasing over the last few months as natural gas continues feature prominently in the U.S. plans to achieve energy independence.
The downside is that HGT’s reserve-to-production ratio is only about 10.6 years. However, due to enhanced drilling techniques, the trust’s life may be longer. HGT currently yields a hefty 12.5%.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.