Capital preservation in building a stock dividend portfolio is essential. I will discuss four stocks which offer safety and strong dividends. The concept of "safety" takes an active part on the investor. Earning high dividend yields requires active portfolio management. Anyone can provide high-yielding stock dividend ideas, but the key is protecting the invested capital. Here are stocks which have hedges in place to pay a dividend for a specified period, regardless of what commodity prices due in the interim.
SandRidge Permian Trust Common (PER)
I believe SandRidge Permian Trust Common is the No. 1 hidden value in trust paying dividends. SandRidge Energy Inc. (SD) owns a 40% stake in SandRidge Permian Trust Common, post-IPO.
SandRidge Permian Trust Common began trading on August 11th, 2011. The trust has had a trading range of $17.56 - $19.36. The IPO price was $18.00. As of Friday, September 23rd, the closing price was $18.00. In reviewing the PER IPO offering documents, I believe the $18.00 was a depressed offering price based upon difficult market conditions. I am able to pick up shares at the offering price and take advantage of market mispricings. I believe the current valuations are compelling to add to my SandRidge Permian Trust Common position.
SandRidge Permian Trust Common has the following dividends expected to be paid out through 2016. The hedged production is through the first quarter of 2015. PER was offered as a trust from parent SandRidge Energy, Inc.
The first dividend should occur by November 30th. This dividend will encompass the second and third quarters for SandRidge Permian Trust.
Parent SandRidge Energy has counter-party risk which the investor should pay attention to. SandRidge Permian Trust Common dividends may not be paid if the parent runs into financial difficulty. I recommend watching SandRidge Energy very closely to avoid any ongoing litigation. SD does have a net $3-billion in debt on its balance sheet. The trust SEC filings provide the following risk warning: "The subordination of certain trust units held by SandRidge does not assure that you will in fact receive any specified return on your investment in the trust."
SandRidge Mississippian Trust I (SDT)
SandRidge Mississippian Trust began trading on April 7th. The stock opened at $21.75. The stock has had a trading arrange of $21.60 - $30.99. As of the September 23rd close, SDT was trading at $23.08.
SandRidge Mississippian Trust has price swaps and energy financial collars in effect for the early years between 2011 and 2015. Oil is hedged via price swap contracts at prices ranging between $100.94 - $104.15. Natural gas is hedged via collars at $4.00 - $8.55 price points per mmbtu.
SandRidge Energy owns a 38% stake in SandRidge Mississippian Trust, post-IPO. SandRidge Mississippian Trust I has the following dividends expected to be paid out through 2016. SDT was offered as a trust from parent SandRidge Energy, Inc.
Here are the expected, page 12, SandRidge Energy dividend payouts through 2016 - including both the subordination threshold and incentive threshold:
Parent SandRidge Energy has counter-party risk which the investor must be aware of. SandRidge Permian Trust Common dividends may not be paid if the parent runs into financial difficulty. The trust SEC filings provide the following risk warning: "The subordination of certain trust units held by SandRidge does not assure that you will in fact receive any specified return on your investment in the trust."
ECA Marcellus Trust I (ECT)
The ECA Marcellus Trust I is a trust formed by private Energy Corporation of America (ECA). ECA Marcellus Trust is a compelling value due to the expected cash flows over the next 19 years. ECA Marcellus Trust I was SEC-stated formulated to pay out a significant return-of-capital dividend in its early trading years. This will allow the investor to recoup a significant percent of the investment capital. Dividends will be paid through 2030. The fund's termination date is March 31, 2030. The trust has 14 operating horizontal natural gas wells at the present time.
Page 16 of the ECT 10-Q June 30th states the expected dividends from present day through the first quarter of 2015. The chart has quarterly subordination threshold levels, target distributions and incentive thresholds. These thresholds provide incentives to Energy Corporation of America (ECA) operator to produce more than expected natural gas production.
VOC Energy Trust (VOC)
VOC Energy Trust Units started trading on May 6th, 2011. The trust has operating oil and natural gas wells in Central and Eastern Kansas and Eastern Texas. The trust has 892 gross wells located in 193 fields. The trust will terminate on the later of December 31, 2030 or when 9.7-MMBoe have been produced.
Certain members of the VOC sponsors are the same as those who formed MV Oil Trust (MVO). The VOC sponsors and the VOC partners collectively will receive 48% of the trust's distributions. VOC is set up to pay 80% of net oil and natural gas production. VOC sponsors will receive the remaining 20% of oil and natural gas production. VOC partners will own 35% of the outstanding VOC shares.
Whiting USA Trust 1 (WHX)