The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.By Paul Tracy NEW YORK ( StreetAuthority) -- There simply aren't many opportunities like this one. It's an energy investment, but it's a far cry from the oil majors such as ExxonMobil ( XOM) or Chevron ( CVX).
But that's just the start . . . You see, most trusts simply package up some of their reliable reserves and wells, sell them to the public as a trust and that's the end of the story. Those interests in the wells pay out steady dividends and not much changes. But SDT is a different breed of trust. That's because in addition to the 37 wells it owned at its inception, the trust also gets a bonus. Between its inception in December 2010 and December 2015, parent company SandRidge must drill an additional 123 wells, of which SDT will own a 50% stake. In other words, in the next several years each unit of this trust will have a stake in an increasing number of wells . . . meaning increased royalties and distributions. Because the trust is so new, it has only made two dividend payments so far -- one of $1.07 per unit (for a longer-than-usual period of January through May 2011) and another for 82 cents per unit. But the trust has outlined its projected distributions for the next four years. If you take the midpoint of these projections, then it adds up to payments of $2.73, or a 10% yield at recent share prices. But here's the best part -- the trust has significantly topped its projected distributions so far. In the recent quarter when it paid 82 cents per unit, it had targeted a distribution of just 66 cents. In other words, the trust topped its targeted distribution by 24%. This shows management is already underpromising and overdelivering. As a royalty interest holder in this trust, I like that. Action to Take --> Because SDT is a royalty trust, the tax implications can be complicated. You will probably want to entrust your tax filing to a competent accountant. But don't fret too much about Uncle Sam. Although royalty trusts such as SDT can create some minor tax headaches, the trust's 10% yield -- and the potential for rising distributions in the future -- should prove to be well worth the hassle in the long run. This is also why I have tabbed SandRidge Mississippian Trust as one of my " Top 10 Stocks for 2012." This select group of just 10 ideas are the ones we've marked to outpace the broader market over the coming year. You can learn more about what we uncovered -- including some names and ticker symbols -- by reading our latest research. Also see:
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