It pays a
of 10.5%. And it's one of the most unique
payers on the
It's not a regular business -- it doesn't have thousands of
employees or millions of dollars worth of equipment -- and it
doesn't have complex operations that take a doctorate degree to
understand or track.
In fact, I think it's one of the simplest investments on the
market. It has only one mission -- take in royalties from dozens of
oil wells and pay them out to investors.
If you read my articles regularly, then you'll remember when
I first told you
SandRidge Mississippian Trust (NYSE:
just a few weeks ago.
, SDT owns a stake in dozens of wells run by its
SandRidge Energy (NYSE:
. SandRidge Energy takes care of the drilling, production,
marketing, and selling of the oil and gas produced (production is
split roughly 50/50 between oil and gas). The royalty trust -- SDT
-- is passive in the relationship. It doesn't have to do a thing.
In return for the initial investment when it went public, its
investors get a cut of all the oil and natural gas sold from the
In the latest quarter, the oil produced from those wells allowed
SDT to pay a distribution of $0.82 per unit, giving a forward yield
of 10.5% at today's price.
But that double-digit yield is just part of the story...
You see, I picked up
of SDT for my
Top 10 Stocks
advisory back in early October (subsequently, I also named the
stock as one of my
Top 10 Stocks for 2012)
. I bought the shares at just over $20. Three months later the
shares trade above $31 -- a gain of more than 50% in price alone.
I'll admit, a 50% gain in three months -- especially from a stock
paying a double-digit yield -- is uncommon. But this trust was
seeing a setup that's pretty rare. Remember, the trust's production
is half oil, half natural gas. Meanwhile it has hedged about 60% of
its projected revenues through 2015. Therefore, you'd expect the
trust to move with oil and natural gas prices, but not move as much
as those commodities.
But when I bought the stock for
Top 10 Stocks
back in October, SDT has fallen more than both oil or gas during
the previous two months.
To me, that fall in the trust's shares -- and the subsequent rise
-- illustrates one of the most important lessons for making money
in the short term with income stocks...
You can use the sell-offs in some thinly-traded income stocks to
lock in abnormally high yields and see significant capital gains.
Mention income stocks to most investors, and they picture companies
Johnson & Johnson (NYSE:
-- enormous companies with millions of shareholders that pay yields
usually in the 3-4% range.
But when you start to dig into the income field, you see there is
an entire corner of the market that most people don't know about.
Take SDT for example -- despite yielding more than 10%, the stock
trades 180,000 shares per day. That's what AT&T trades in just
Why is that important? Since many of these income stocks are
unknown to most investors, they trade fewer shares. Just a few
thousand people selling their shares can lead to a sell-off and
some very attractive prices and higher yields for new investors.
And this is the case with SDT. Despite paying a double-digit yield
and having much of its production hedged, the shares fell more than
oil and gas prices when the broader market saw a sell-off in
September. There was nothing wrong with the stock -- short-sighted
investors simply sold whatever they owned to get out of the market.
That exaggerated the move down... giving investors a chance to lock
in a higher yield and setting themselves up for strong gains once
things calmed down. You know the rest of the story.
It's one of the best tricks I've found for making serious gains on
high-yield stocks in a short time. The opportunity to buy these
dips doesn't happen often -- I see it just a couple of times a year
at most -- and it usually comes amid a broader market sell-off. And
nothing is guaranteed, even if you buy on a dip.
Action to Take-- >
But the 50% gain in one of our
Top 10 Stocks for 2012
shows how lucrative it can be when you have the chance to lock in
high yields from solid stocks unfairly tarnished by no fault of
: I'd love to tell you more about my
Top 10 Stocks for 2012
, including SDT. One stock has raised dividends 110% in five
years... another has $8.25 per share in cash (45% of its share
price)... another yields 8.0% while it has nearly doubled its
year-over-year. These are the types of investments that make up my
Top 10 Stocks for 2012 report.
To learn more about these top picks for the coming year,
visit this link
-- Paul Tracy
Paul Tracy owns shares of SDT.StreetAuthority LLC owns shares of
SDT in one or more if its "real money" portfolios.
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