Hook / Thesis
Kimbell Royalty (KRP) is offering a very large headline yield today because the market is discounting the risk of distribution variability. I think that risk is overstated for 2026: Kimbell's recent quarters show durable operating cash flow, steady revenues and earnings, and a large, diversified mineral base across core U.S. basins. Those fundamentals argue that the distribution should remain relatively stable next year, making KRP a tactical income trade for investors willing to accept commodity and operator risk.
This is not a no-risk play. The partnership has a history of quarterly dividend variability and the market price has already compressed from 2024/early-2025 highs around the mid-teens to a recent close near $11.69 (11/24/2025). But the company generated Q1-Q3 2025 operating cash flow of $54.15m, $72.32m and $62.76m respectively, and declared a full-year 2025 distribution run-rate of $1.60 per common unit (sum of four quarterly declarations) - implying a near 13.7% yield at the current price. That combination - big yield + real cash generation - is worth a tactical allocation with disciplined risk controls.
What the business does and why it matters
Kimbell Royalty Partners owns mineral and royalty interests across major U.S. oil and gas basins - the Permian, Mid-Continent, Haynesville/Cotton Valley, Appalachian, Eagle Ford, Bakken/Williston and DJ/Niobrara regions. Revenues come from royalties and NGL sales based on operator production; the company does not operate wells itself. That means KRP's cash flow is driven by production volumes, realized commodity prices and the activity/efficiency of underlying operators rather than capex intensity on Kimbell's balance sheet.
For income investors, royalties are attractive because operating leverage is limited - KRP benefits when production and prices cooperate, but it also has lower operating expense needs compared with an operator. The market cares because the partnership structure distributes most free cash flow to unitholders; distribution coverage depends on the conversion of reported net income and operating cash flow into distributable cash.
Evidence from the numbers
| Metric | Q1 2025 | Q2 2025 | Q3 2025 |
|---|---|---|---|
| Revenues | $84,208,766 | $86,548,000 | $80,620,000 |
| Net income (attributable to parent) | $25,853,000 | $26,672,000 | $19,682,000 |
| Net cash flow from operations | $54,152,677 | $72,321,323 | $62,763,000 |
Those operating cash-flow prints are the meat of the case. Across the three most recent quarters the partnership produced $189m of operating cash flow, an outcome that supports distribution funding even after financing activity and working capital swings. The balance sheet remains asset-heavy (assets ~$1.25bn as of 9/30/2025) and liabilities (~$469m) are measurable; temporary/redeemable equity shows up on the statement (~$158.6m), which is a factor for valuation and governance but not an immediate drain on distributable cash.
Dividends and yield: Kimbell declared quarterly cash distributions in 2025 of $0.40 (03/25/2025), $0.47 (05/28/2025), $0.38 (08/25/2025) and $0.35 (11/24/2025) for a sum of $1.60 for the year. At the recent close of $11.69 on 11/24/2025 that implies an annualized cash yield of roughly 13.7% (1.60 / 11.69). That yield reflects both the payout level and the market's repricing after the stock slid from earlier highs in the mid-teens to the low $12s and sub-$12s through 2025.
Valuation framing
The dataset does not include market capitalization or shares outstanding, so we cannot show a market-cap-to-book or explicit EV multiple here. What we do have is market-price context: KRP traded as high as roughly $16.52 in 2025 intraday before the pullback to the current ~$11.69 close. The move lower has pushed the distribution yield sharply higher and indicates the market is pricing in distribution risk, operator/production downside or capital structure concerns.
Qualitatively, the valuation trade-off is: you get a very high running yield today in exchange for the acknowledged risks. If operating cash flows continue around the quarterly levels we saw in 2025, the yield is supported by coverage. If cash flows drop materially and the partnership has to cut the distribution, the market will reprice lower and the yield will be a false friend. That asymmetric payoff is why I recommend a disciplined trade plan instead of a full-sized position.
Catalysts (what could move the stock higher)
- Higher realized oil and gas prices or improved NGL realizations - directly increases royalty receipts and distributable cash.
- Outperformance/production increases from key operators in the Permian, Haynesville and Appalachia - more volume without Kimbell needing to spend.
- Accretive acquisitions of mineral/royalty assets financed sensibly - expands cash flow base and signals management confidence.
- Improved credit markets enabling refinancing or a reduction in financing costs tied to temporary/redeemable equity structures.
- Reversion of sentiment as distribution proves stable across the next four quarters - yield compression as fear subsides.
Actionable trade idea
My tactical trade: initiate a long position with a position/swing time horizon (6-12 months), sizing small-to-medium relative to total portfolio because of commodity sensitivity.
- Entry: Buy between $11.00 and $12.00, scale-in if you prefer (current close 11/24/2025: $11.69).
- Stop: $10.00 hard stop (protects capital if the market is re-rating distribution or if commodity weakness accelerates). If you prefer less risk, tighten to $10.50.
- Targets:
- Target 1: $14.00 - tactical cover/partial take-profit (≈20% upside from $11.69).
- Target 2: $16.50 - second take-profit, near prior multi-month highs and a level that implies meaningful yield compression.
- Time horizon: position / swing trade (6-12 months). Hold through distribution dates if you believe in coverage, but be prepared to tighten stops after any weak distribution.
- Position sizing: limit exposure to a single-digit percentage of liquid income allocation (depends on investor risk tolerance). This is a high-yield, high-risk name - treat it accordingly.
Risks & counterarguments
- Commodity price risk - the most obvious: weaker oil/gas/NGL prices reduce royalties and distributable cash quickly. A sustained price shock could force distribution cuts.
- Production / operator risk - Kimbell is dependent on third-party operators. Declines in operator activity, downtime, or underperformance reduce cash flow despite Kimbell having no operating control.
- Distribution variability and perception risk - the company has shown quarterly distribution variability; a repeat or deeper cut would likely push the unit price lower and reset yield expectations.
- Balance-sheet and temporary equity considerations - the partnership shows temporary/redeemable equity (~$158.6m) and noncurrent liabilities; financing stress or unfavorable refinancing could pressure cash available for distribution.
- Illiquidity/volatility - KRP can gap on headline risk (commodity moves, large distribution news), so stop discipline matters.
Counterargument: The market's yield is a canary - it may be pricing in a larger structural problem that numbers don't yet reveal. The distribution fell across 2025 quarterly declarations (from $0.47 in 05/2025 to $0.35 in 11/2025), a pattern that suggests management is ready to flex payout if needed. If that trend continues or if there is a surprise production decline from a major operator, distribution stability could be illusory and capital loss could overwhelm yield. That is a real possibility and why I keep position size conservative and insist on a stop.
What would change my mind
- I would become bearish if operating cash flow declines sequentially for two consecutive quarters below the Q1-Q3 2025 range (below ~50% of those quarterly prints) or if management announces a multi-quarter distribution cut that changes the run-rate materially below $1.60 annualized.
- I would also change my view if there were a material negative surprise on the balance sheet - e.g., a large impairment charge, rapid redemption of temporary equity, or covenant-triggering financing events.
- Conversely, I would become more constructive (and add to targets) if Kimbell announces accretive acquisitions that increase distributable cash per unit or if the next four quarters show stable distributions with operating cash flow sustained near the mid-$60m quarterly range.
Bottom line
Kimbell Royalty is a classic income trade where the headline yield is tempting but not without operational and commodity risks. The partnership produced consistent operating cash flow through Q1-Q3 2025 and declared a 2025 distribution run-rate of $1.60 (implying a ~13.7% yield at current prices). If you want the yield, do it with a plan: enter around $11.00-12.00, protect principal with a $10.00 stop, and take profits in the $14.00 / $16.50 neighborhood as distribution stability is confirmed or sentiment normalizes. Keep allocations modest - this is a tactical, not core, holding unless you have deep conviction in commodity and operator direction.
Disclosure: This is a trade idea, not personalized financial advice. Do your own due diligence and size positions to your risk tolerance.
Selected doc references (dates)
Latest dividend declaration: 11/06/2025 (pay date 11/24/2025).
Q3 2025 filing acceptance: 11/06/2025 (10-Q).
Price reference: close $11.69 on 11/24/2025 (market snapshot).