Dorchester Minerals, L.P. Distributes 100% of Net Income to Unitholders

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Written By Dean McHugh

Royalty trusts offer a compelling income source by leasing land to energy producers and receiving royalties from crude oil and natural gas production. Although not a trust, Dorchester Minerals, L.P. (NASDAQ) operates similarly by collecting royalties, having minimal expenses, and distributing 100% of its net income to unitholders.

Company Profile

Credits: DepositPhotos

Dorchester Minerals, L.P. specializes in acquiring, owning, and managing royalty properties in the U.S. These properties include both producing and non-producing mineral, royalty, overriding royalty, net profits, and leasehold interests across 593 counties and parishes in 28 states.

The partnership is managed by Dorchester Minerals Management LP and was founded in 1982, based in Dallas, Texas.

Holdings Overview

DMLP’s extensive holdings span 28 states, with Texas, North Dakota, and Montana being the largest. The revenue breakdown shows that oil accounts for 77%, gas for 14%, and natural gas liquids for 9%, with 72% of revenues derived from royalties and 26% from net profit interests (NPI).

Key Advantage of DMLP

A significant advantage of DMLP is its ability to acquire additional acreage, enhancing its reserves. This is in contrast to certain energy trusts that have fixed reserves and may terminate upon depletion.

As of December 31, 2022, DMLP had reserves of 15.5 million barrels of oil equivalent (MMBoe). Despite production reducing reserves by 3.5 MMBoe in 2023, revisions and acquisitions added 1.4 MMBoe and 0.5 MMBoe, respectively, bringing total reserves to 13.9 MMBoe by year-end.

Recent acquisitions have significantly boosted production: oil by 15%, gas by 25%, and natural gas liquids by 154% between 2019 and 2023.

Earnings Analysis

In Q1 2024, royalties remained flat while NPI revenues declined by over $9 million compared to Q1 2023, resulting in lower operating revenues. Management attributes this to decreased oil and gas sales volumes from NPI properties, particularly in the Permian Basin, offset by increased production in the Bakken region. Cash receipts for Q1 2024 were $24.5 million, with average oil and gas prices at $63.89/bbl and $2.37/mcf, respectively.

Key financial metrics, including revenues, net income, earnings per unit (EPU), EBITDA, and operating cash flow, declined in Q1 2024 compared to Q1 2023.

Dividend Distribution

DMLP’s latest distribution was $0.7818, yielding 9.88%. The distributions are variable, and the next payout may differ. DMLP’s five-year dividend growth average is over 24%, with a notable 128% increase in 2022.

Operating cash flow covered distributions by 1.07x in 2023 but dipped to 0.68x in Q1 2024. Distributions can lag cash receipts by up to seven months, affecting payout timing.

Industry Peers and Performance

DMLP operates in a competitive landscape with peers like Sitio Royalties (STR), Viper Energy (VNOM), and Black Stone Minerals (BSM). DMLP’s market cap is $1.27 billion, placing it in the mid-tier among these companies.

Its trailing 10.45% yield is competitive, though MVO and VOC Energy have higher yields. DMLP’s trading volume is lower compared to its peers, with 67,000 shares traded daily.

While DMLP has underperformed the energy sector in 2024, its one-year total return of 17.63% was commendable, largely due to its high yield. Over the past five years, DMLP has outperformed several peers, demonstrating strong long-term returns.

Management and Insider Activity

Credits: DepositPhotos

Management’s alignment with unitholders is reinforced by the absence of incentive distribution rights and significant LP interest. Recent insider purchases, including CFO Moriyama’s acquisition of 2,430 units, highlight confidence in the company.

Dorchester Minerals, L.P. offers a compelling addition to an income-focused portfolio, given its high yield, strategic acquisitions, and strong long-term performance. Potential investors may consider buying units if prices dip below $31.00.



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