For U.S. Oil and Gas Royalty Trusts, It's Location, Structure and Term: Kevin C. Smith, Vice President at Raymond James & Associates, Inc., Interviews with The Wall Street Transcript
67 WALL STREET, New York - May 6, 2013 - The Wall Street Transcript has just published its High-Yield Equity Securities Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs and Equity Analysts. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
Topics covered: Increasing Demand for Midstream Assets - U.S. Energy Infrastructure Build Out - Oil and Gas Transportation Infrastructure Demand - Master Limited Partnerships Distribution Growth - Low Treasury Yields and MLP Dividends -
Companies include: MV Oil Trust (MVO), SandRidge Permian Trust (PER) and many more.
In the following excerpt from the High-Yield Equity Securities Report, an expert analyst discusses the outlook for the sector for investors:
TWST: How would say they compare to MLPs in terms of being different investment options?
Mr. Smith: They're a little bit different asset class. Your MLPs are going to produce steadier cash flow numbers, and so if you have a less sophisticated investor that just doesn't want to deal with the volatility, that's probably the better way to go.
The royalty trusts by their nature are going to pay out higher cash flows, but they're going to bounce around, because the quarterly distribution is not guaranteed and not fixed. Not that the MLPs' distributions are guaranteed, but based off a fixed rate, you've got a lot more certainty around an MLP's quarterly distribution than you would on a royalty trust.
TWST: In your coverage universe, what are your recommendations on the royalty trust? Any particular favorites?
Mr. Smith: We've been bearish on them for quite a while. We put out a report this morning on MV Oil Trust (MVO), upgrading it from a "sell" to "neutral." The most attractive trusts at this point on a valuation basis is the SandRidge Permian Trust (PER), and the SandRidge Mississippian Trust II (SDR). The SandRidge Permian Trust has a yield to maturity of almost 10%. That one's started to look fairly attractive to us. We recently upgraded it to an "outperform" rating.
Then the second one starting to look attractive on a full yield-to-maturity basis is SandRidge Mississippian Trust II, which is trading at about a 9.3% yield to maturity. We've seen a healthy pullback in a lot of these names, and we are waiting to see where the dust settles, and then think we could hopefully see an attractive entry point sometime in the next two to three months.