Sunday, October 07, 2007

Highest Yielding Canadian Energy Royalty Trusts

If you are looking for high income, monthly dividend payments, possible partial tax sheltering of income, and a hedge against higher oil prices, you should consider Canadian Energy Royalty Trusts, also known as Canadian Oil Income Trusts, Canadian Royalty Trusts, and Canadian Oil Royalty Trusts. The trusts pass through all their earnings generated from oil and gas wells to the trust holders, similar to the way that real estate investment trusts payouts are handled, without double taxation. Because the entity is set up as a trust instead of a corporation, there is no taxation at the corporate level. In addition, part of the dividends may be non-taxable due to depletion and depreciation deductions.

Investors are also looking at these trusts as potential takeovers, since the announcement of the takeover of PrimeWest Energy Trust (PWI) by Abu Dhabi National Energy.

However, there is some negative news on the horizon. The Canadian government released a plan to tax all Canadian trusts at the corporate level beginning in the year 2011. This caused all Canadian trusts to plunge in price last November, which caused the trusts to have a higher yield. In the mean time, these trusts are still providing some favorable yields.

Avoid putting Canadian Oil Income Trusts in an IRA or other qualified plan. See my article from last year for more information on this taxation issue of foreign trusts. [Author disclosure: I own Canadian trusts in my Roth IRA, in spite of the foreign tax withholding.]
Here are a few of the Canadian Royalty Trusts that are traded on stock exchanges in the United States.

At the top of the list in terms of yield is Enterra Energy Trust (ENT), which trades on the New York Stock Exchange, at 27.9%, based on its historical monthly payments. However, the Board of Directors just announced in September that they suspended the trust’s monthly distribution payments to unitholders for at least six months in order to repay debt. The company reported a net loss of $121.38 million for the latest quarter. In addition, the chief operating officer of its U.S. operations resigned last month. Therefore, this trust should not be considered an income stock but an extremely speculative investment.

The second highest on the list is Harvest Energy Trust (HTE) at a yield of 17.4%. They just announced their payout of $0.38 Canadian per trust unit for November. In August, Canaccord Adams upgraded the company from a Sell to a Hold. The stock has a price to earnings ratio of 17.64.

Another high yielding Canadian Trust is Canetic Resources (CNE), which pays a yield of 15%. The company just confirmed that it will maintain its monthly dividend at $0.19 per share Canadian. They reported a 9% increase in gross revenues for the latest reported quarter; however, they reported a loss per unit versus a profit for that same quarter last year. The company has a forward P/E of 101.8.

Pengrowth Energy Trust (PGH) is another Canadian Royalty Trust with a high yield, paying 15% also. They announced a distribution of $0.225 Canadian per trust unit for October. They recently reported a net income of $1.11 per trust unit for the latest quarter versus $0.69 per trust unit for the same period last year. The company has a P/E of 13.89.

For a list of the rest of all 12 of the Canadian Energy Trusts, go to

Disclosure: Author owns PWI.

By Fred Fuld at

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