Dorchester Minerals: A High-Yield, Low-Risk Oil Royalty Play in a Rising Rate World

In a world where rising interest rates are making high-yield investments harder to stomach, Dorchester Minerals, L.P. (DMLP) stands out as a rare gem. This oil royalty play combines a conservative financial profile with a stubbornly high dividend yield, making it a compelling case for income-focused investors willing to navigate the volatility of energy markets. Let's break down why DMLP could be a no-brainer for your portfolio-even as rates climb.

Financial Fortitude: Debt Is a Non-Issue

Dorchester Minerals' balance sheet is a masterclass in prudence. As of June 30, 2025, its debt-to-equity ratio sits at a minuscule 0.02, a level so low it borders on nonexistent. For context, most energy companies would kill for a ratio under 0.5. This ultra-low leverage means DMLP isn't burdened by interest payments or refinancing risks, even as the Federal Reserve tightens its grip.

Liquidity? The company's current ratio and quick ratio both hit 11.61 in Q2 2025, according to its 10‑K filing, a number so robust it suggests Dorchester could survive a prolonged oil price crash without breaking a sweat. Compare this to peers like Permian Basin Royalty Trust (PBT), which has no operating costs but relies entirely on the whims of production volumes. DMLP's financial engineering gives it a leg up.

Revenue Resilience: Growth Amid Headwinds

Yes, Dorchester's Q3 2025 revenue dipped 13.29% year-over-year to $32.40 million, according to StockAnalysis, but don't let that scare you. The past twelve months tell a different story: total revenue hit $161.86 million, a 4.04% increase. This resilience stems from strategic acquisitions-like the $202.6 million grab of mineral rights in Texas and New Mexico, detailed in a SEC 10‑K report-which have diversified its asset base.

Royalties make up 85% of DMLP's revenue, according to the company's 10‑K, and in Q4 2024, royalty income surged 20.02% year-over-year to $137.47 million. That's the kind of stability you want in a rising rate environment, where future cash flow discounts hurt speculative plays more than cash-rich royalty companies.

Dividend Drama: High Yield, High Stakes

Let's cut to the chase: DMLP's 12.88% yield is a siren song for income hunters. But here's the rub-its payout ratio is a staggering 179.1%, per FullRatio, meaning it's paying out more in dividends than it earns. On paper, this looks unsustainable. But here's the twist: DMLP's payout ratio is based on net income, not cash flow.

The company generated $92.4 million in net income in 2024, and its operating cash flow was significantly higher, allowing it to distribute $146.5 million to unitholders, according to the SEC filing. This cash flow-driven model is critical. While rising rates might make investors wary of high-yield stocks, DMLP's ability to fund distributions via operating cash-rather than earnings-gives it a buffer.

Still, the dividend growth rate is in freefall: -37.72% over the past year, per FullRatio. That's not a red flag, exactly, but it's a warning siren. Investors should treat this as a "high yield for now" play, not a forever income stream.

Risk Mitigation: Navigating the Storm

Rising rates hurt all high-yield assets, but DMLP's risk management strategies are top-tier. The company avoids hedging (unlike peers like San Juan Basin Royalty Trust, which uses futures contracts) and instead relies on its high-margin royalty model. This approach minimizes operational costs, which rose 11% in Q2 2025, according to the Q2 10‑Q, but still left it with a 19% increase in operating cash flow.

DMLP's Achilles' heel? Concentration risk. Three operators-ExxonMobil, Diamondback Energy, and Pioneer Natural Resources-account for most of its revenue, per the SEC 10‑K. A production dip at any of these could hurt. But given the operators' scale and DMLP's geographic diversification (Texas, New Mexico, Colorado), this risk feels manageable.

Peer Comparison: DMLP vs. the Field

Compare DMLP to its royalty trust peers, and its strengths shine. Permianville Royalty Trust (PVL) suspended dividends in 2024 due to cost overruns, while Sabine Royalty Trust (SBR) saw a 12% drop in distributable cash flow in Q2 2025, per the company's filings. DMLP's ability to maintain distributions-even as costs rise-proves its operational discipline.

What about the interest rate headwind? Sure, a 12.88% yield might lose luster as bond yields climb, but DMLP's low debt and cash flow-positive model make it less sensitive to rate hikes than a leveraged E&P firm. It's not immune, but it's better insulated.

The Verdict: Buy, But Stay Alert

Dorchester Minerals isn't perfect. Its payout ratio is a landmine if cash flow dips, and its dividend growth is in reverse. But for investors prioritizing yield over growth, DMLP offers a rare combination: a high payout, rock-solid balance sheet, and a business model that thrives on stability.

In a rising rate world, this is the kind of stock you want in your "high-risk, high-reward" bucket-not as a core holding, but as a bold bet on energy's resilience. Just keep an eye on those cash flow numbers. If they falter, the dividend could take a hit. But for now? This is a play I'm watching closely.