Dorchester Minerals is a master limited partnership (MPL) that invests in land and then sells the mineral and drilling rights in return for royalty payments. The royalties the company collects are based on the volume of oil and gas which is produced on its land. The company owns 378,000 acres of land across 25 US states, and as of the end 2011 it had 337 producing wells.
The Dallas based company owns both producing and non-producing crude oil and natural gas royalty interests, which include gas fields in the Fayetteville Shale trend, the Appalachian Basin, and the Barnett Shale formation.
What is an MLP?
A Master Limited Partnership (MLP) is a publicly traded limited partnership which must derive most of its cash flows from real estate, natural resources and commodities.
MLPs make distributions that are similar to dividends, and these are generally paid out on a quarterly basis and because MLPs are not subject to income tax they typically have more cash available for distributions. This generally makes MLP shares (referred to as “units”) worth more than the shares of a corporation.
The size of an MLP’s cash distributions generally drives the value of its MLP units.
In 2011 Dorchester returned around 87% of its $58.2 million total revenue to unit holders (shareholders) as cash distributions (effectively dividends). Unit holders of record as of 23 July 2012 received $0.456351 per common unit held, the equivalent of an 8.14% yield at today’s share price.
In 2011 the company generated 51% of its gross revenue from gas sales, 48% from oil sales and 1% from other revenue. It also added 75 new wells located in Alabama, Arkansas, North Dakota, Oklahoma and Texas, and at the end of 2011 Dorchester had total “proved” reserves of 88.4 BCFE (Billions of Cubic Feet Equivalent).
On 2 August 2012, Dorchester announced its second quarter results, and thanks to the weak price of North American natural gas, operating revenues for the three month period were down 7.2% to $15,242,000 from the same period in 2011. Net Earnings were also down from $9,770,000 in Q2 2011, to $8,680,000, a 12.5% drop. However, natural gas prices have now reversed their long downtrend and the higher price should begin to produce better earnings and payouts in Q3 and Q4.
Why Own It?
The primary reason to own Dorchester is that it provides excellent income. It also provides exposure to higher oil and gas prices, has no long-term debt outstanding, and the majority of its 378,000 acres of land are undeveloped.
Dorchester flies under the radar of most investors (and by the looks of their website that’s how the company likes it). It also tends to be ignored by mainstream investment publications and brokerages, though it has been recommended by several of the energy analysts we follow. As a result institutions only own 14% of outstanding shares while company insiders own around 28%.
It’s worth noting that because royalty payments are directly affected by the price of oil and natural gas, cash flow and distribution payments do vary. For instance, distributions in 2006 were $2.83 per share, in 2007 were $1.97, in 2008 were $2.80, in 2009 were $1.50, in 2010 were $1.60, and in 2011 they were $1.65.
A 3 year chart of Dorchester Minerals
Source: Yahoo Finance. Notes: Dorchester’s common units trade on the NASDAQ Global Select Market under the symbol DMLP.
|Company Name||Dorchester Minerals L.P.|
|Exchange / Ticker||NASDAQ: DMLP|
|1 Year Performance||-8.8%|
|Current annualised dividend rate||US$0.46|
|Earnings per Share (EPS)||$1.28|
|52 Week Range||19.87 – 26.60|
Source: Google Finance