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While the recent commodity appreciation has become more volatile, many fiduciaries continue to believe commodity allocations will act as a currency inflation hedge. Additionally, commodity supply shortages and growing global demand for most things should assist other inflationary pressures in increasing commodity prices. Oil and natural gas are popular choices.
Canadian oil & energy is a sensible choice to consider when looking for oil & natural gas investments, amongst other natural resources. Canada is the largest foreign supplier of energy to the United States, sharing large and friendly borders that facilitate easy distribution and further pipeline development.
Furthermore, Canadian money has shown strength relative to most currencies because of its strong connection to natural resources and more conservative fiscal policies. Also, on May 2, Canada’s Conservative Party scored strong support in general elections, securing about 20 more seats and a majority in Parliament, and giving Canadian Prime Minister Stephen Harper another term in office. This is the first majority government in Canada in seven years.
Several of the Canadian oil & gas companies providing higher yield may not only work as an energy commodity investment, but also as a supplement to the high yield portion of an income portfolio. Here are seven Canadian oil & gas companies with market capitalizations between $2 and $26 billion, and with yields between 2% and 7%. Three have yields above 6%.
  1. Baytex Energy Corp. (NYSE:BTE)
    • Yield: 4.4%
    • Dividend Frequency: monthly
    • Industry: Independent Oil & Gas
    • Market Capitalization: $6.5 billion
    • Debt: $607 million
  1. Cenovus Energy Inc. (NYSE:CVE)
    • Yield: 2.4%
    • Dividend Frequency: quarterly
    • Industry: Oil & Gas Drilling and Exploration
    • Market Capitalization: $26.3 billion
    • Debt: $6.42 billion
  1. Enbridge Inc. (NYSE:ENB)
    • Yield: 3.2%
    • Dividend Frequency: quarterly
    • Industry: Oil & Gas Pipelines
    • Market Capitalization: $24.3 billion
    • Debt: $6.45 billion
  1. Enerplus Corporation (NYSE:ERF)
    • Yield: 7.1%
    • Dividend Frequency: monthly
    • Industry: Oil & Gas Drilling and Exploration
    • Market Capitalization: $5.7 billion
    • Debt: $944.7 million
  1. Pengrowth Energy Corporation (NYSE:PGH)
    • Yield: 6.5%
    • Dividend Frequency: monthly
    • Industry: Oil & Gas Drilling and Exploration
    • Market Capitalization: $4.34 billion
    • Debt: $1.14 billion
  1. Provident Energy Ltd. (PVX)
    • Yield: 6.2%
    • Dividend Frequency: monthly
    • Industry: Oil & Gas Drilling and Exploration
    • Market Capitalization: $2.4 billion
    • Debt: $465.7 million
  1. Penn West Petroleum Ltd. (NYSE:PWE)
    • Yield: 4.4%
    • Dividend Frequency: quarterly
    • Industry: Oil & Gas Drilling and Exploration
    • Market Capitalization: $11.84 Billion
    • Debt: $2.91 Billion
It is believed that this Conservative majority might not only cut personal and income taxes, but also reduce spending initiatives. This all bodes well for Canadian energy companies, and particularly their now converted royalty trusts. Canadian Royalty Trusts (CanRoys) were similar in design to U.S. MLPs, in that they avoided corporate taxes. Canada eliminated these trusts, and most of them have since converted into corporations. Nonetheless, some of these companies continued to pay out high yields helped by some carry forward tax write-offs. New laws could help this Canadian industry.
Currently, wildfires in Alberta have cut oil output from its northern parts. Alberta is Canada's largest energy producing province. This event should not have much of an effect upon oil & gas prices, but could particularly affect certain interests in Alberta. Such issues are often corrected quickly. I certainly hope that the damage to any surrounding communities is limited.

The higher yield Canadian oil & gas companies tend to succeed or fail on the strength of the energy commodities they can sell. Therefore, these companies presently provide a decent income alternative to most other equities and bonds, where a fiduciary must consider significant interest rate, inflation and/or default risks. While not without risks, most notably including exposure to potential commodity deflation and demand reduction, Canadian oil & gas should not be overlooked when considering energy, commodity, currency and income investments.


Disclosure: I am long PGH.

Additional disclosure: Investments should be considered on their own merit and relative to the total portfolio of investments.

Source: A Canadian Oil and Gas Primer: 7 Picks Offering Above Average Dividends