5 Canadian Oil and Gas Equities Yielding Over 4%

 |  Includes: BTE, ERF, PBA, PGH, PWE
by: Zvi Bar
Many 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.

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, Swiss and Canadian currencies, 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.

This is a list of some Canadian oil and 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. If U.S. dollars go down in value relative to Canadian dollars, American investors will appreciate the Canadian hedge.

The following is a list of 5 Canadian oil and gas equities that currently yield over 4%, listed in alphabetical order. They range in size from $2.5 to $12 billion. Another point of note is that 4 of these 5 companies pay their dividends on a monthly basis, which is appreciated by those who need consistently flowing income. I have also included their 2011-to-date performance.
  1. Baytex Energy Corp. (NYSE:BTE)
    • Yield: 4.5%
    • Dividend Frequency: monthly
    • 2011-to-date Performance: 22.96%
  1. Enerplus Corporation (NYSE:ERF)
    • Yield: 7.2%
    • Dividend Frequency: monthly
    • 2011-to-date Performance: 1.36%
  1. Pengrowth Energy Corporation (NYSE:PGH)
    • Yield: 6.6%
    • Dividend Frequency: monthly
    • 2011-to-date Performance: 3.10%
  1. Provident Energy Ltd. (PVX)
    • Yield: 6.3%
    • Dividend Frequency: monthly
    • 2011-to-date Performance: 14.08%
  1. Penn West Petroleum Ltd. (NYSE:PWE)
    • Yield: 4.9%
    • Dividend Frequency: quarterly
    • 2011-to-date Performance: -5.38%
Four of these five companies' shares are up year to date, not counting dividends paid, with PVX being up over 14% and BTE up nearly 23%. Only PWE is down, now approximately 5%, though others have briefly been negative in the prior months. PWE is also the only one of the five that pays its dividend quarterly rather than monthly (but this is likely unrelated to its performance). See the performance chart, below. Click to enlarge:

Click to enlarge
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 continue 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.
Several seem capable of maintaining present payout rates so long as oil stays above $80. 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.

Disclosure: I am long PGH.
Disclaimer: This article should not be construed as personalized investment advice as it does not take into account your specific situation or objectives.