Dividend Edition: A Well of Income

Today’s dividend investment is a brand new stock, created in August, that is already yielding over 9%. From Carla Pasternak’s High-Yield Investing:

SandRidge Permian Trust (PER) began trading on August 11, 2011. Its sponsor, SandRidge Energy (SD) created the trust by spinning off 509 producing wells and 888 development wells in the prolific Permian Basin in western Texas. … In its short history, Permian has made two distributions.

“The first [distribution] was for the second and third quarters of 2011, covering the first five months of production from April 1 to August 31, 2011, and was $0.723 per unit. The second was for the final quarter of 2011 and was $0.553523 per unit. As required, distributions represent 100% of distributable income.

“[When it was created,] Permian laid out a set of target distributions. The April to August target distribution was $0.66. In paying out $0.723, the trust beat this target by 9.5%. The fourth quarter 2011 target was $0.49. This target was exceeded by 13.0%. The target distributions for 2012 may be conservative given the trust’s history of exceeding the targets twice in a row.

“However, using them as a rough guide, target distributions totaling $2.28 per unit this year equate to a forward yield of almost 10% ($2.28/$23.07) at today’s price. … Permian expects to increase its distributable income per unit from $2.28 in 2012 to $2.73 in 2013 to $3.19 in 2014 before they peak. That means, if you bought the units today, you would have an exceptional yield on cost of 13.8% ($3.19/$23.07) in two years. … Although there is always commodity risk in oil-based royalty trusts, I am attracted to SandRidge Permian’s robust current and growing future yield. … Buy.”

Wishing you success in your investing and beyond,

Chloe Lutts

Editor of Investment of the Week

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