Wednesday, July 09, 2008

Oil Stocks with Very High Yields

With the price of oil reaching almost $150 per barrel, and the oil stocks having a selloff in the last few days, investors are looking for ways to invest in oil but receive a high income in return. One investment that meets these objectives are the Canadian Income Trusts, also known as Canadian Oil Income Trusts or Canadian Royalty Trusts. They pass through all their earnings from their oil and gas wells to the trust holders, similar to real estate investment trusts. There is no taxation at the corporate level since they are structured as trusts plus, and a portion of the dividends may be non-taxable due to depletion and depreciation write-offs.

There are a couple of negative issues you should be aware of. The Canadian government came out with a plan to tax all Canadian trusts at the corporate level beginning in the year 2011. In addition, the Canadian royalty trusts should never be put into a retirement plan due to the withholding tax issue.

Below is a selection of some of the Canadian income trusts that trade on US stock exchanges.

Harvest Energy (HTE) is a Calgary, Canada company which has paid monthly dividends since July 2005. The company has operations in Alberta, Newfoundland and Labrador. It pays a yield of 16.2%.

Pengrowth Energy (PGH) has been paying dividends since July 2004. Its reserves include about 320,000 thousands of barrels of oil equivalent. The stock has a P/E of 12, with a yield of 14.4%.

Provident Energy Trust (PVX), another Calgary, Alberta based company, has been paying monthly dividends since October 2002. They have operations in Alberta, Saskatchewan, California, Wyoming, Texas, Florida, and Michigan. The stock has a P/E of 128, and pays a yield of 13.5%.

Advantage Energy Income (AAV), has paid dividends since April 2004. They have operations in Alberta, British Columbia, Saskatchewan, and Manitoba. The stock has a yield of 12.4%.

To get an Excel list of all the US-traded Canadian Oil Income Trusts, which you can download, change, and sort, go to

Author does not own any of the above.

By Fred Fuld at


chachwins said...

With regards to Canadian energy trusts, I assume they just take money out of the account for the tax with holding. Do you know if its the same with American MLP's in a Roth IRA too or not sure? Thanks for the input.

Stockerblog said...

For the American MLP's, there normally won't be withholding taxes on the distributions. However, there are problems with putting an MLP in a retirement plan.
First, since part to all of the income may be sheltered, there is no reason to shelter sheltered income. Second, there is something called a UBTI issue, the unrelated business taxable income, which I understand can cause the taxation or voiding of the retirement plan. I am not a CPA so you would have to talk this over with an accountant.