If you’re looking for higher yields than what the U.S. Treasury market, or for that matter your local bank’s CD rates, are paying, San Juan Basin Royalty Trust (NYSE: SJT) is an interesting alternative source of cash flow.

Currently the company is yielding about 6.3% on an annualized basis. This yield is generated from the overriding royalties the trust owns on current natural gas production.

Additionally, the company is poised to profit from a seasonal shift in energy prices.

You see, San Juan Trust has the rights to 75% of the revenue generated by an oil-and-gas property owned by Burlington Resources Oil & Gas Company LP, a subsidiary of ConocoPhillips (NYSE: COP). It also has royalty interests in 119,000 net producing acres located in northwestern New Mexico’s San Juan Basin.

The cash flow from these properties is returned to investors once the trust’s costs and capital budgets are deducted.

This makes the company compelling to me as I review its mix of assets and yield, as well as the seasonality of natural gas at this point in the year. I love to buy yield that can appreciate in price and quantity, with a bull market in the out-of-favor underlying asset.

In simple terms, if natural gas goes up in value, so should the dividend rate paid per share of the trust. So investors will enjoy a double gain if the stock rises: One in share price, another in cash flow. This offers you a great way to play natural gas without using margin or futures.

Now is a good time to add natural gas investments to your portfolio.

Energy prices have had their long seasonal sell-cycle, which we used to call “shoulder” season when I was an active portfolio manager. As natural gas finishes fill season and looks toward winter withdrawal season, prices are likely to climb.

That means it’s time to buy San Juan Basin Royalty Trust. (**).

San Juan Basin Royalty Trust

San Juan Trust investors enjoy a high yield due to the company’s low-cost set up.

San Juan Trust – founded in 1980 and based in Forth Worth, TX – is managed by a trust provider. That means the company has zero employees and a 100% payout structure, once costs and capital projects have been considered.

The trust has built out most of its capital costs already, allowing new investors to enjoy a higher yield rate from the dividends. This also means that a significant amount of the future risk is already built into the trust shares.

Another bonus: The natural gas produced from its property is dry gas as opposed to wet gas. Wet gas requires more handling issues than a dry field to meet “pipeline quality” standards, but San Juan’s dry gas already is at near-pipeline quality.

Besides the dry gas benefit, San Juan Trust’s underlying properties have characteristics that allow long, productive lives for their drilled wells. The Trust’s independent petroleum engineers estimated that as of Dec 31, 2010, the underlying properties had a production index of 8.3 years. That number was derived by dividing remaining reserves by current production.

As natural gas prices rise, so will the production index, because a producer can justify increased spending to recover more of the reserves.

The Trust currently sports a $1.17 billion market capitalization and an enterprise value of $1.14 billion, once net cash and debt are taken into consideration.

San Juan Trust is a great way to use the stock market to play natural gas futures. Also compelling is the stock’s beta of 0.85, which means it moves at a slower pace than the Standard & Poor’s 500 Index.

San Juan Trust stock closed Friday at $23.83.

Action to Take: Buy San Juan Basin Royalty Trust. (NYSE: SJT).

Now is the time to buy a high-yielding vehicle that will allow us to capture some of the coming bounce in natural gas prices while taking home a regular dividend also leveraged to energy prices. If natural gas takes off again, the Trust’s investors enjoy a higher dividend rate, which should drive up the share price of the investment itself.

The Trust also has an options market available to generate additional cash flow if you want to write covered calls or naked puts.

Let’s pick up 50% of our position now, and look toward one more pullback in the market to pick up the second half at 5% to10% lower than it is today. If we don’t get a fill on these shares, you can use naked puts to build the rest of the position while still being able to generate additional cash flow.

(**) Special Note of Disclosure: Jack Barnes has no interest in San Juan Basin Royalty Trust. (NYSE: SJT).

– Jack BarnesSource: Money Morning

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