Hugoton Royalty Trust: A 6% Yielding Bet On Oil And Gas Prices

Royalty trusts can be a good place to look for investors focused primarily on high dividend yields. And, many royalty trusts pay dividends each month.

Hugoton Royalty Trust (HGT) is no exception – the company has a high dividend yield of 6.4% using its trailing twelve month dividends. You can see the full list of established 5%+ yielding stocks by clicking here.

In addition, It pays a monthly dividend which allows investors to compound their dividends more frequently than quarterly or semi-annual dividends.

Monthly dividend stocks are a rare breed. There are currently just 21 stocks that make monthly dividend payouts. You can see the entire list by clicking here.

This is a very difficult time for oil and gas royalty trusts, due to the steep decline in oil prices over the past few years. As a result, they are exposed to the risk of a continued decline in commodity prices. That said, they are worth exploring further for investors interested in high current income. And, they offer potential for growth, if commodity prices increase moving forward.

This article will discuss Hugoton Royalty Trust’s business model and its dividend.

Business Overview

Hugoton was created on December 1, 1998 by XTO Energy, which is now a subsidiary of Exxon Mobil (XOM). At that time, XTO created the trust with an 80% interest in primarily gas-producing properties, located in Kansas, Oklahoma, and Wyoming.

Hugoton makes money by collecting income from its 80% interest. Income is calculated and paid by XTO Energy, and is based on the proceeds from the underlying properties. The trust then calculates dividend payments to investors of record on the last day of each month.

Hugoton will continue operating and paying dividends as long as the oil and gas fields are producing. The trust does not have a specified end date, but will terminate if royalty revenue falls below $1 million per year over any consecutive two-year period.

It should come as no surprise that Hugoton has struggled mightily over the past three years. Crashing oil and gas prices caused the trust’s income to collapse in tandem.