Update on Three Canadian Oil Royalty Trusts

If you think the price of oil is heading back up, but you want high income for protection, you should consider Canadian Oil Royalty Trusts. These Canadian Income Trusts, also known as Canadian Oil Income Trusts or Canadian Royalty Trusts pay a very high income. The trusts pass through all their earnings and deductions from 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. Also, a portion of the dividends may be non-taxable due to depletion and depreciation deductions.

You should be aware that the Canadian government came out with a plan to tax all Canadian trusts at the corporate level beginning in the year 2011. However, the average yield from Canadian trusts is still higher than the U.S. royalty trusts. WallStreetNewsNetwork.com recently came out with an updated database list of Canadian Oil Royalty Trusts. Below is a list of some of the Canadian Royalty Trusts that are traded on United States stock exchanges.

Some of these have extremely high yields which may not be sustainable, but even if they are cut to a third, the yields would still be high.

Pengrowth Energy (PGH) has been paying dividends since July 2004. The stock has a P/E of 7, with a yield of 25.3%.

Provident Energy Trust (PVX), has been paying monthly dividends since October 2002, has a P/E of 4 and pays a yield of 16.2%.

Advantage Energy Income (AAV), has paid dividends since April 2004. The stock has a P/E of 4 and a yield of 33.5%.

To get an Excel database list of all the US-traded Canadian Income Trusts, which you can download and sort, go to WSNN.com.

Disclosure: Author does not own any of the above. Please note: these very high yields may not be sustainable.

Comments

[Conan the B...:]

PVX: the worst is probably over here, they were always very conservative on payouts and their Pipeline activity boosts the payout. The just reduced their payout for the second time. Six cents Canadian vs nine cents.

On current currency conversion, this is about 5 cents USD monthly. Canadian withholding of 15% reduces the payout to about four cents USD which You will get back as a Tax credit.

4 cents monthly on a $3 stock, with the dividend taxable at 15% for a while longer, hell, even if it is ordinary income, it is a great payout.

Besides, Oil will not stay down and when it goes up, so will the shares. IMHO

I own it plus hte and pwe.

Feb 25 04:18 AM

[Toeser:]

I believe that AAV has tax loss carry-forward that will protect it from 2011 tax changes for many years, if memory serves me correctly.

Feb 25 07:47 AM

[longoil:]

Paultaut,

Have you seen the beating HTE has been getting lately ? It has dropped more than 35% in the last week. I could not find any HTE related news, but suspect they are planning a major dividend cut. They are currently paying a "nose bleeding" high of 52% in dividends. I suspect this will drop to 26%, if not 14% in next week's announcement.

I have HTE as well as ERF, PWE & COSWF which have all made major dividend cuts in the last few months.

Feb 25 08:22 AM

[worthy:]

Recheck the yields in your spreadsheet to verify their accuracy. Alsso, a simple way to compare apples to apples: 1.00 X .803 Canadian $), X .85
(Payout left after Canadian 15% tax) = 68.2 ( what's left for the investor after all circumstances affecting the US dollar, taxes, et al. So, if AAV for instance were purchased at $2.30 (U.S.) its true after tax return to a U.S. Citizen= .04*12=.48 yearly; .48*.682=.3274 (Dividend in U.S. Currency);
.3274/2.3=14.23%. Not a bad after tax yield assuming one reclaims the Canadian 15% at tax time.

Feb 25 08:29 AM

[worthy:]

Regarding my last comment: I can spell also, but my keyboard cannot...

Feb 25 08:30 AM

[Joe pal:]

AAV does not have a 33% yield. It cut its dividend, a third time, to 4 cents a month. In 2008 the dividend was 15 cents a month. Its yield has also risen because its share price has declined significantly.

Feb 25 08:36 AM

[Ames Tiedeman:]

PVX has a tax carry forward out to 2013. The risk in all of these is if oil goes to 25. the dividends will be zero once this happens and you will have a capital loss as the shares will be cut in half yet again. if you buy these you are hoping oil goes back to 75. Then you will have increases in the pay outs which, along along with the rising crude will drive the prices back up. These are hardly risk free, however.

Feb 25 09:26 AM

[huangjin:]

PGH just cut to about $0.07 a month, which is about 15% at current prices.

Feb 25 09:30 AM

[Uncle Pie:]

This writer owns shares in a number of Canadian Income Trusts, including companies that are dually listed (ie in New York and Toronto) and companies that only trade on the TSX. Readers should be aware that Pengrowth (PGH) has elected to be taxed as a partnership in the US, and therefore US investors will have a very complex k-1 tax form to contend with. The other trusts' distributions, to the best of this writer's knowledge, are taxed as dividends to US investors. Always check the issuer's website for the tax treatment to US investors. In the opinion of this writer, some of the more promising investments are to be found among those trusts that trade only on the TSX. Most US brokers, excluding some of the bare-bones discounters, can execute trades on the TSX for US investors with no problem. Check out Crescent Point Energy Trust, Vermilion Energy Trust, Arc Energy Trust and Canadian Oil Sands Trust. This writer owns some of all of these. UBS has excellent research on the Canadian Income Trusts. You can also get a lot of good information for free at the website bnn.ca, which is the CNBC of Canada. Good Luck!

Feb 25 09:48 AM

[Steve Ward:]

Regarding all Canadian Royalty Trusts, they all have tax loss carry forwards but the Canadian Feds will still take a 50 percent increase out of American unit holders after 1-1-11.
At this rate the IRS and Congress maynot allow a tax credit higher than the current 15 percent. That will go to a 23 percent witholding in 2011.

Feb 25 11:17 AM

[bill d:]

I own several - aav, pwe, pvx.
Have some Mar 09 options I will lose my ass on unless oil doubles in next month.
Not worried about taxes - going to stop paying to see if I can get a cabinet post nomination.

Feb 25 01:14 PM

[ROLEXDAYTONA:]

This "TRUSTS" are down 80% for the year, sorry, are you c....?

Feb 25 02:13 PM

[koolsool:]

Hedge funds loaded up on high yielding Canadian Energy Trusts with leveraged money. It was a carry trade, borrow yen & put it in to high yield trusts. They are still unwinding this carry trade, hence the obsurd high yields.

Feb 25 04:52 PM

[User 329005:]

What is going to happen to the share price in 2011 to the Canadian trusts. If they start paying taxes is the share price go even lower?

Jeff

Feb 25 06:18 PM

[ehiggin:]

What I am able to find say they may suspend the div.


On Feb 25 08:22 AM longoil wrote:

> Paultaut,
>
> Have you seen the beating HTE has been getting lately ? It has dropped
> more than 35% in the last week. I could not find any HTE related
> news, but suspect they are planning a major dividend cut. They are
> currently paying a "nose bleeding" high of 52% in dividends. I suspect
> this will drop to 26%, if not 14% in next week's announcement.<br/&g...
>
> I have HTE as well as ERF, PWE &amp; COSWF which have all made major
> dividend cuts in the last few months.
>

Feb 26 12:07 AM

[User 305589:]

pgh seems to me the best of those three. insiders have been buying quite heavily in q4,too. low oil and gas prices hurt them as anyone in the industry, no doubt. however, they are pretty well hedged and the payout ratio is quite reasonable at just about 50%.
that being said, my favourit is PMT, listed in Canada only. Insiders kept buying, the yield is great and it is well managed.
to those who ask how anyone could recommend buying a stock that has fallen 60-80% i can only reply: if the business is not permanently impaired, it makes certainly much more sense to buy it now then before that 80% drop, no?
go figure.
people have become accustomed to flee everything that carries a high dividend yield assuming that this means per se it is unsustainable. like pawlowian dogs. high dividend yields of 20-30% are indeed unsustainable, i agree. but they can be 'cured" also by rising stock prices - not just by lowered payouts.

Feb 26 03:54 AM

[David Shane:]

I used to own some AAV, and switched to ERF. AAV does have a very large "tax pool," although I've heard conflicting reports about how helpful that will be for Americans. It also has an extremely large amount of debt and a management that doesn't seem to like to communicate with investors (conference calls quite rare.)

Feb 26 10:25 AM

[Rich in Az:]

"On current currency conversion, this is about 5 cents USD monthly. Canadian withholding of 15% reduces the payout to about four cents USD which You will get back as a Tax credit."

How and what do you get back as a tax credit????



On Feb 25 04:18 AM paultaut wrote:

> PVX: the worst is probably over here, they were always very conservative
> on payouts and their Pipeline activity boosts the payout. The just
> reduced their payout for the second time. Six cents Canadian vs nine
> cents.
>
> On current currency conversion, this is about 5 cents USD monthly.
> Canadian withholding of 15% reduces the payout to about four cents
> USD which You will get back as a Tax credit.
>
> 4 cents monthly on a $3 stock, with the dividend taxable at 15% for
> a while longer, hell, even if it is ordinary income, it is a great
> payout.
>
> Besides, Oil will not stay down and when it goes up, so will the
> shares. IMHO
>
> I own it plus hte and pwe.
>
>
>

Feb 26 05:18 PM

[Whitehawk:]

I suspect hedge fund selling of HTE was also a factor in the last week. Shorting due to a possible dividend cut contributed to the unusual declines, but the cut is still just a rumor. I am thinking of buying more HTE. I own HTE and PGH. The problem with AAV is debt load. ENT got into a significant bind with a high debt load and has not recovered yet. So going into AAV has risks, it could take a hit on principle and dividend.

BTW - I'd like more "transparency" into all these trusts. Yes, we know that if oil goes to $25 they probably cut or eliminate their dividends, but not all of these are created equal, and this article really isn't that informative, it comes off more as a puff piece.

On Feb 25 08:22 AM longoil wrote:

> Paultaut,
>
> Have you seen the beating HTE has been getting lately ? It has dropped
> more than 35% in the last week. I could not find any HTE related
> news, but suspect they are planning a major dividend cut. They are
> currently paying a "nose bleeding" high of 52% in dividends. I suspect
> this will drop to 26%, if not 14% in next week's announcement.<br/&g...
>
> I have HTE as well as ERF, PWE &amp; COSWF which have all made major
> dividend cuts in the last few months.
>

Feb 26 07:07 PM

[billy32:]

HTE is another canadian which has gotten killed... with deflation going down, there could continue to be some woes for them, good read at crashmarketstocks.com

Feb 26 11:45 PM

[smokey0110:]

I am with Scottrade and own PVX and did own AAV, both of which I collected dividends for and paid foreign tax on. On my composite 1099 statement that Scottrade sends to me at the end of the year, you will find a box that has the total of foreign tax paid. I used Turbo Tax and entered the total in the box that states foreign tax paid and it then factors it into your return for a credit.


On Feb 26 05:18 PM Rich in Az wrote:

> "On current currency conversion, this is about 5 cents USD monthly.
> Canadian withholding of 15% reduces the payout to about four cents
> USD which You will get back as a Tax credit."
>
> How and what do you get back as a tax credit????
>

Mar 26 07:33 PM

[Pat Hart:]

Still believe in your comment about tax loss. My IR says to sell. Would appreciate an answer. Thanks. P.S. Do you still hold AAV?


On Feb 25 07:47 AM Toeser wrote:

> I believe that AAV has tax loss carry-forward that will protect it
> from 2011 tax changes for many years, if memory serves me correctly.

May 08 09:46 PM

[Pat Hart:]

Trying to find out if anyone else owns AAV. I do. Unfortunately, I am going to lose a large amount if I listen to my IR, and sell this stock.
Something about unable to deter tax obligations. Has anyone heard of this? If so what is your opinion?

Thanks, Sweating this one
Pat

May 08 09:58 PM