High Yield Dividend Play: Permian Basin Royalty Trust (PBT)

The next high yield dividend play that you should position in your portfolio is Permian Basin Royalty Trust (NYSE:PBT).

The Permian Basin Royalty Trust is an express trust created under the laws of the state of Texas by the Permian Basin Royalty Trust Indenture entered into on November 3, 1980, between Southland Royalty Company and The First National Bank of Fort Worth, as Trustee. Bank of America,  ., a banking association organized under the laws of the United States, as the successor of The First National Bank of Fort Worth, is now the Trustee of the Trust. The function of the Trustee is to collect the income attributable to the Royalties, to pay all expenses and charges of the Trust, and then distribute the remaining available income to the Unit holders. (Source: Bigcharts)

In running the initial screen, emphasis was placed on stocks that met the following criteria:

oMarket Capitalization >= 500,000,000

oAverage Daily Volume Last Quarter >= 80,000

oCurrent Annual Dividend Yield between 5-12%

oReturn on Equity >= 10%

Permian Basin Royalty Trust (PBT) meets our screener constraints and technical criteria. The current statistics are as follows:

oCurrent Price Per Share = $ 

oMarket Capitalization = 751,799,900

oAverage Daily Volume Last Quarter = 326,581

oCurrent Annual Dividend Yield =  %

oReturn on Equity =  %

(Source: MSN Screener Deluxe)

On a three-year weekly chart, you will notice that this security had initially moved upward from around $  per share all the way up to just over $ . Typically, when there is a move of this magnitude (94%) we would expect the security to pull back somewhere in the neighborhood of either  %, 50%, or  % of the move. These retracement percentages are known as the Fibonacci ratios.

The stock then fell back to the $  mark, which represented a  % pullback from the $  levels. If the stock were to fall back this last level of major support, we would have likely seen a complete collapse of this move and the upward trend would have been finished.

But the stock didn't collapse...

Instead, the stock raced back up to resistance at $  and quickly smashed through this barrier. From there the stock needed to rest, hence the need to trade in a sideways fashion and collect the energy needed to make the next push for new highs. Now, the stock has been consolidating for over a year now. If the stock was meant to move lower it would have already. Remember that the longer a stock trades sideways, the more powerful the move when it does occur.

Once the stock has broken out from this channel, I believe you should see a nice return on investment in addition to the dividend that the stock already pays out. In this case, Permian Basin Royalty Trust has an annual yield of  %.

In my estimation, this is a very stable play accompanied by a solid dividend and potential for a major upside price move.

Our Recommendation: In this play, you should buy in only after the stock has broken through its upper channel on above average volume. In this case, you could buy near $  per share and then place a stop-loss just below the new horizontal support line near the $  region.

Good Investing... 

Stephen Oakes

For more information, please visit: High Yield Money Market