First Year Is a Good One for SandRidge Mississippian Trust
As the final days of 2011 tick off the calendar, it's a great time to dust off our portfolios and take a look at how our favorite stocks performed this year. You've likely suffered through some lows and enjoyed some highs following your companies for 12 months, but now it's time to evaluate the whole picture and decide whether your stock is still the right investment for your portfolio.
Today we consider SandRidge Mississippian Trust I (NYSE: SDT) . This investment vehicle comes from Oklahoma-based SandRidge Energy (NYSE: SD) and focuses on the exploration and production of domestic oil and natural gas in the Mississippi Lime region of Kansas and Oklahoma. The economics of this region are pretty compelling and, taken with the current U.S. energy boom, investors are interested.
The trust at a glance
|Year-to-Date Stock Return||18.96%|
|Target Distribution/Unit Through November||$1.68|
|Actual Distribution/Unit Through November||$1.89|
|CAPS Rating (out of 5)||*****|
Source: Yahoo! Finance and company statements.
A trust is born
The trust only IPO'd in April of this year, so its history is a short one. Fifteen million units went up for grabs, quarterly payouts associated with each one. The quarterly payouts are generated two ways:
- 90% of the royalties from 37 existing SandRidge wells.
- 50% of the royalties from 123 wells that will be drilled by Dec. 31, 2014.
The trust has been well-received and, together with its sister SandRidge Permian Trust (NYSE: PER) , outperformed its parent company in 2011:
SandRidge Energy stock tanked this summer over worries about the company being overleveraged and missing earnings. There is no debt associated with the trusts, however. As long as SandRidge drills wells, and those wells produce, the trust is golden. Production risks are legitimate, but it is a relief to know that an earnings miss by the parent company doesn't necessarily equate to a drop in the value of trust units.
But let's be honest, it's the distributions that trust investors really care about. This trust is structured so that distributions to unit holders increase until 2014, when the terms of the trust require all wells to be drilled. Payments decrease thereafter until the trust expires, the assets are sold off, and the proceeds are distributed.
SandRidge Mississippian Trust is just another example of how investors can profit from dividends and unit payments. If you like SandRidge for your portfolio, consider checking out 11 more ideas with the Fool's special free report "Secure Your Future With 11 Rock-Solid Dividend Stocks."