North European Oil Royalty Stock: Bullish 20.1%-Yielder Up 38% in 2023
August 1, 2023
Why NRT Stock Is Worth Considering
North European Oil Royalty Trust (NYSE:NRT) is an overlooked oil and gas exploration and production company that not only has been thumping the broader market in terms of share price, but has raised its high-yield dividend for the last six quarters.
And thanks to fabulous quarterly financial results and industry tailwinds, the outlook for North European Oil Royalty stock’s price and dividend is robust.
The trust holds overriding royalty rights covering gas and oil production in various concessions or leases in the Federal Republic of Germany. The rights are held under contracts with local German exploration and development subsidiaries of Exxon Mobil Corp (NYSE:XOM) and the Royal Dutch/Shell Group of Companies. (Source: “Annual Report 2022,” North European Oil Royalty Trust, last accessed July 28, 2023.)
Nearly 100% of the royalties that the trust receives come from the Oldenburg Concession, which covers about 1.4 million acres in Lower Saxony.
The trust conducts no active business operations and is restricted to the collection of income from royalty rights and the distribution to NRT unitholders of the net income after payment of administrative and related expenses.
For the second quarter ended April 30, North European Oil Royalty announced that its total royalty income increased by 158% year-over-year to $9.8 million, while its net income jumped by 167% to $9.5 million. (Source: “North European Oil Royalty Trust Announces Net Income for the Second Quarter of Fiscal 2023,” North European Oil Royalty Trust, May 12, 2023.)
In the first six months of fiscal 2023, the trust’s total royalty income went up by 209% to $19.5 million, while its net income rallied by 222% to $19.0 million.
North European Oil Royalty Trust Declared Quarterly Dividend of $1.05/Unit
North European Oil Royalty units’ dividends fluctuate based on energy production and prices. The dividends rose sharply from $0.14 per unit in late 2021, to $0.38 per unit in the second quarter of 2022, to $1.05 per unit in the second quarter of 2023. The most recent distribution works out to a massive yield of 20.1%. (Source: “Trust Distributions,” North European Oil Royalty Trust, last accessed July 28, 2023.)
In the first six months of its fiscal 2023, NRT stock’s distribution went up by an impressive 225% to $2.05 per unit, compared to $0.63 in the first six months of fiscal 2022.
What does the future hold for North European Oil Royalty stock’s dividends?
Gas prices actually declined from the first quarter to second quarter of this year, but the company has been receiving more royalties than those attributable to gas sales and prices.
Why?
According to North European Oil Royalty Trust’s agreements with operating companies, the trust’s monthly royalties are paid based on the amount of royalties that were payable to the trust in the prior quarter.
In the second quarter of fiscal 2023, the royalties paid to the trust were derived from actual royalties received during the first quarter of fiscal 2023. This was during a period in which there was a big spike in German natural gas prices.
What does this mean for North European Oil Royalty stock’s third-quarter distribution? The company’s overpayment of royalties in the second quarter resulted in a negative carry-over that will reduce the royalties that will be paid to the trust in the third fiscal quarter.
As a result, this reduction in royalty income is expected to “substantially” reduce quarter-over-quarter cash distributions for the third fiscal quarter. So, we know that North European Oil Royalty Trust’s third-quarter distribution will be less than its second-quarter payout of $1.05. That’s part of investing in stocks with variable payouts.
NRT Units Thrashing Broader Market
A rising high-yield dividend is great, but it’s even better when it’s accompanied by big stock market gains. Incredibly, North European Oil Royalty units are yielding 20.1% at a time when their price is up by a whopping 38.5% year-to-date and 20% year-over-year.
Since North European Oil Royalty Trust announced its second-quarter financial results, investors have sent NRT units significantly higher, to within striking distance of a new record. On July 24, NRT stock’s price hit an intra-day high of $16.36, just shy of its May 2022 all-time record high of $16.49.
Not surprisingly, because of the volatile nature of energy prices, no Wall Street analysts are willing to take a position on where North European Oil Royalty units’ price will be in the next year.
But with Brent crude oil prices rallying by more than 11% over the last month to about $83.00 per barrel and Goldman Sachs Group Inc (NYSE:GS) raising its forecast for crude oil to $86.00 per barrel by the end of the year, the chances that NRT units will hit new records are more than compelling. (Source: “Goldman Sachs Expects ‘All Time High’ Oil Demand to Spur Large Deficits, Boosting Prices,” CNBC, July 24, 2023.)
Chart courtesy of StockCharts.com
The Lowdown on North European Oil Royalty Trust
What’s not to love about North European Oil Royalty stock right now? The trust has been reporting high total royalty income, net income, and distribution-per-unit growth.
While North European Oil Royalty Trust has warned that its third-quarter dividend will be lower than its second-quarter payout, the long-term outlook for crude oil and natural gas is solid. This bodes well for the company’s unit price and high-yield distributions.
