With 2011 almost in the rearview mirror, many investors start to mull over their portfolios and ask what comes next. It's a fair question, and the answers we find are really the crux of great investing. The ability to identify value before the market has already baked expectations into the stock price is what distinguishes the successful investor.
With that, let's take a look at 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.
Stats for the trust
| Year-to-Date Stock Return | 21.15% |
| Target Distribution/Unit Through November | $1.68 |
| Actual Distribution/Unit Through November | $1.89 |
| Current Price | $29.33 |
| 52-Week High | $30.99 |
| 52-Week Low | $18.76 |
| CAPS Rating (out of 5) | ***** |
Sources: Yahoo! Finance and company statements.
A look backward
This was the first year of existence for this SandRidge trust. It had its IPO in April, and investors were able to buy into an investment vehicle that reaps 90% of the royalties from 37 SandRidge Energy wells, and 50% of the royalties from 123 other wells, to be drilled by its parent company by Dec. 31, 2014.
An eye on the future
Parent company SandRidge recently inked a joint-venture deal with Repsol in the Mississippi Lime, an important provision of which excluded all wells and acreage associated with the trust.
Here's a peek at the expected shareholder payout schedule for next year …
|
2012 Quarter |
Target Distribution |
|---|---|
| First | $0.65 |
| Second | $0.70 |
| Third | $0.74 |
| Fourth | $0.73 |
| Total | $2.82 |
Source: company filings.
… and the trust's expected production stats for the first quarter of 2012.
|
Sales Volumes |
December 2011 |
March 2012 |
|---|---|---|
| Oil (MBbl) | 146 | 149 |
| Natural gas (MMcf) | 910 | 921 |
| Total (MBoe) | 298 | 302 |
Source: company filings.
Keep in mind that when companies combine oil production numbers with natural gas production numbers, the new unit, MBoe, represents thousands of barrels of oil equivalent, a combination of thousands of barrels of oil (MBbl) and millions of cubic feet of natural gas (MMcf).
Another important consideration for the trust going forward is that 54% of expected production, and 60% of the expected revenues that generate the distribution payments, will be hedged until Dec. 31, 2015. Given the state of natural gas prices right now, this is a nice safety net for investors.
Bottom line
Year to date, the trust has outperformed SandRidge's expectations and distributed higher payouts to shareholders than its initial targets suggested. Unless its parent company has major production issues in 2012, expect the trust to be as successful in the new year.
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."
