Dorchester Minerals Shows Exceptional Deflation Resistance

At a McDep Ratio of 0.66, the competitive value looks attractive in Dorchester Minerals, L.P. (DMLP), a high-quality energy income producer with no debt and no obligation to pay operating expenses on some 64% of oil and gas production. The favorable operating statistic appears in our regular weekly table for income stocks. With the downside well protected, DMLP also has unusual upside potential in its trove of “mineral” interests in oil and gas prospective areas with some rights dating back a hundred years. Nor does the partnership report “undeveloped” reserves that might typically account for a third of proven reserves in leading companies.

The hidden quality in DLMP might readily be missed in an interpretation of the statistical comparison by cash flow multiple and reserve life as we show regularly. Instead, our estimated Net Present Value of $24 a unit gives some recognition to the partnership’s advantages. Assured of DMLP’s deflation resistance and inflation protection, investors can enjoy an estimated distribution yield of 11% for 2009.

DMLP could complement or substitute for buy-recommended Hugoton Royalty Trust (HGT), which has less than a billion dollars of market cap. We suggest a one-sixth weighting by Enterprise Value in the McDep Energy Portfolio spread among Income and Small Cap stocks. If limited to buy recommendations, the one-sixth weighting would be about 8% in income stock HGT and 8% in small cap Cimarex (XEC). We suggest another 8% in buy-recommended Canadian Oil Sands Trust (COSWF.PK) that we count in the Canadian portion of Large Cap stocks covered in our companion weekly analysis, Meter Reader. COSWF is the only stock that now appears in both weekly analyzes.

Finally, median distribution yield for the thirteen income stocks rises to 10.9% amid continually changing prices. Settlement prices for futures are from December 31 for deliveries of Light, Sweet Crude Oil at $54.01 a barrel and Louisiana Natural Gas at $6.21 a million btu over the twelve months ended January 2010. The commodity prices combine with other projections to support our estimate of distributions.

Originally published on January 2, 2009.