5 Canadian Oil and Gas Companies That Currently Yield Over 4%

Includes: BTE, ERF, PBA, PGH, PWE
by: Zvi Bar

Many trustees believe commodities are presently a good US currency hedge and general investment, even though most have recently undergone considerable price increases. The reasons some believe commodities will increase in cash-value vary, including inflation pressure, supply shortages and growing global demand for most things. One popular commodity choice continues to be petroleum, primarily in oil form, but also natural gas. As many readers know, oil has appreciated a great deal in the past 1-2 years, while gas has not.

Beyond commodities, individuals fearing inflationary devaluation to the U.S. dollar have also considered positions in currencies that are more strongly tied to natural resource prices. Examples of such currencies include Australian, Brazilian and Canadian currencies, alphabetically, among others. Natural resource investments existing and valued in nations where the currency is also backed by natural resources could present a way for a trust to protect itself from currency re-valuation, while also benefiting from potentially increasing resource costs. Of course, that also means two things can go wrong (among others unmentioned).

This is a list of some Canadian oil & gas companies that have dividends that are at least 4%. Canada is the largest foreign supplier of energy to the United States. Canadian based companies pay their dividends in Canadian currency, which means that if U.S. dollars go down in value relative to Canadian dollars, which has been a general trend, American investors will recognize the benefit (if the dividend stays the same, but U.S. dollars go down versus the Canadian dollar, the dividend receives the benefit of the conversion). Some may argue that this conversion rate difference is not really an improvement, as you are merely receiving more of a lesser valued thing, but it is better than receiving the same amount of it.

The following is a list of 5 Canadian oil & gas equities that currently yield over 4%, listed in alphabetical order. They range in size from $2.5 to $12 billion. Market Capitalization is in U.S. dollars and the info is from Yahoo! Finance.

  1. Baytex Energy Corp. (NYSE:BTE)

    • Yield: 4.2%
    • Dividend Frequency: monthly
    • Industry: Independent Oil & Gas
    • Market Capitalization: $7 billion
    • Debt: $475.38 million
  1. Enerplus Corporation (NYSE:ERF)

    • Yield: 7.2%
    • Dividend Frequency: monthly
    • Industry: Oil & Gas Drilling and Exploration
    • Market Capitalization: $5.6 billion
    • Debt: $767.27 million
  1. Pengrowth Energy Corporation (NYSE:PGH)

    • Yield: 6.4%
    • Dividend Frequency: monthly
    • Industry: Oil & Gas Drilling and Exploration
    • Market Capitalization: $4.5 billion
    • Debt: $1.1 billion
  1. Provident Energy Ltd. (PVX)

    • Yield: 6%
    • Dividend Frequency: monthly
    • Industry: Oil & Gas Drilling and Exploration
    • Market Capitalization: $2.5 billion
    • Debt: $296.3 million
  1. Penn West Petroleum Ltd. (NYSE:PWE)

    • Yield: 4.4%
    • Dividend Frequency: quarterly
    • Industry: Oil & Gas Drilling and Exploration
    • Market Capitalization: $11.86 Billion
    • Debt: $2.88 Billion

Canadian Royalty Trusts (CanRoys)

One thing to note is that these companies were formerly Canadian Royalty Trusts (CanRoys). These trusts were similar in design to U.S. MLPs, in that they avoided corporate taxes by passing most of their income to their shareholders. Canada has eliminated these trusts, and most of them have since converted into corporations. Nonetheless, some of these companies continued to pay out high yields.

Many can continue the payouts because they still have losses that they carried forward, while others may be making enough money through the sale of oil and/or other assets. In any event, it is possible that these new corporations may undergo future problems in adapting to this transformation. This may mean some will seek to be purchased, undergo future reductions to their dividend policies, or other possible options. Additionally, some of these dividends may be subject to foreign withholding tax.

Please share your opinions as to this asset class.

Disclosure: I am long PGH.

Additional disclosure: Yield is but one factor in choosing a proper investment. Potential trust investments should be considered on their own merit and relative to the total portfolio of investments.