Hugoton, San Juan Basin Royalty Trusts Fueled by Electricity Growth

Electricity generation trends point to higher natural gas price than that reflected in stock prices for natural gas producers, including income buy recommendations Hugoton Royalty Trust (HGT) and San Juan Basin Royalty Trust (SJT), we believe. Natural gas has fueled 81% of growth in U.S. electricity generation from 2000 to 2006.

The trend seems likely to continue and, in our opinion, should be accelerated. Coal fueled 49% of electricity generated in 2006, down from 52% in 2000 according to the U.S. Energy Information Administration. During the same time natural gas increased its share to 20% from 16%.

Few new coal plants are being built, those proposed are being canceled and non-compliant plants are being shut down. With natural gas selling at half price relative to oil, there is room for natural gas price improvement. While we are waiting, the median of seven natural gas income stocks in our coverage would pay distributions of 8.8% in the year ahead by our projections.

Originally published on November 16, 2007.

HGT vs. SJT 1-yr chart: