Big brother Sandridge Mississippian Trust 1 (NYSE:SDT) has also seen target distributions drop during 2012.
|Quarter||Estimated Payout||Actual Payout||+/-|
Payouts dropped in every quarter of 2012. For a fairly new royalty trust, you would hope that these payouts would be gaining momentum. These falling distributions have certainly been a major factor in Mississippian Trust 1’s stock price. But it is interesting to note that Mississippian Trust 1 was also still able to slightly exceed their distribution goal for 2012.
However, the distributions for this trust fell in every quarter of 2012, and the fall was pretty significant between the 1st quarter and the 4th. Mississippian Trust 2’s distributions only fell in the fourth quarter, and that distribution was still double that of the first quarter.
It’s interesting that Bank of America should chime in with the phrase “lack of confidence.” Over the past several years BoA has been consistently awful at recognizing value. All you have to do is say “Countrywide” to send shivers down the spine of anyone who was invested in Bank of America in 2008. However, while I believe that we must take BoA analysis with a grain of salt, the most recent drop in distribution is alarming.
This trust is approximately 45% oil and 55% natural gas. As we look at what these commodities have done over the past 12 months, we see that crude oil is down just over 12%, while natural gas has nearly doubled in price. This demonstrates that if there is any problem with target payouts, the root issue will be whether or not SMT 2 can reach their production goals.
In 2012, this trust was able to get 83 wells online, with 99 more to go. These wells are currently being drilled on schedule, with the majority coming online this year. So production goals seem to be within reach.
More wells will mean more money to pay out. Originally this trust had expected payments to rise 26% this year, and 9% next year before peaking in 2015. Given that SMT 2’s dividend yield is currently sitting at 17%, these next couple years could get really interesting.
The article Should We Still Trust Them? originally appeared on Fool.com and is written by Jon Quast.
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